Quiz 2- interest rates Flashcards
define interest rates
interest rates is the price of holding money.
in MACRO interest rates is a tool of
monetary policy
monetary vs fical
both r controlled by the government
monetary targets money directly. (IR & money supply)
fiscal policy targets money indirectly. (tax & gov expenditure)
risk loving (4)
when risks are low; returns are low
when risks are high, returns are high
good to make WISE & CALCULATED risks
bad to make IRRATIONAL & UNCALCULATED RISKS
Risk averse
the tendency to avoid risk
-taking money to d bank
- keeping money at home
interest rates can be _____ (for the one borrowing) and _____ (for the one lending/giving the money)
costs
revenue
when inflation goes up; interest rates go ____
up
- positive relationship
3 reasons the aggregate demand is downward sloping
real wealth effect
interest rate effect
exchange rate effect
define aggregate demand
represents the TOTAL DEMANDS for goods & services in an economy at a given OVERALL PRICE LEVEL & in a given time period.
changes in price only cause ______
recessions cause _____
movements
shifts (demand shifts to d left)
interest rates fall then demand ________
exchange rate devalues then demand _______
tourism is a form of _______
increases (right)
increases (right)- ppl will send money here in BZ and not elsewhere.
exports (a lot of demand- appreciates; little demand- depreciates)
nominal interest rates
the stated or named interest rate on the loan or bond WITHOUT adjusting for inflation
Real IR + Interest rate
real interest rates
the nominal interest rate adjusted for inflation. it represents the actual purchasing power of the interest earned or paid.
Nominal IR - Inflation Rate
why should we devalue our currency
- labor will become cheaper and investors will want to invest in BZ
- More foreign investors will bring in US currency
- Belizeans wont import and start being more productive
