After report in newspapers that savings are at an all time low, households begin to save more
a. Explain how the change in savings will impact real interest rates in the US in the short-run.
b. The nominal interest rate is currently at 8% and there is no expected inflation. If government announced a 3% expected inflation rate, determine the value of both:
- new nominal interest rate
- new real interest rate
c.Explain how the change in real interest rates identified in part (a) will affect investment spending by businesses