The graph above shows a hypothetical loanable funds market. Currently the market is in equilibrium. Lenders...

 

   

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The graph above shows a hypothetical loanable funds market. Currently the market is in equilibrium. Lenders and borrowers expect the inflation rate for the next year to be 2 percent and the nominal interest rate is percent. Suppose that oil prices increase and as a result lenders and borrowers revise their expectations of inflation upwards to 4 percent. According to Fisher, this event creates an excess demand for loanable funds equal to million dollars in the very short run. However, soon the nominal interest rate changes percent and the real interest to rate equals percent. Ex-Ante Real Interest Rate --- 7.54 ՀԵՏԵԿ CI ԻՆՖԻՆ | [I F 0... ԶԱՆ ՀՍ NET ՖԿ Է իս էլի OT ORAL Tr The graph above shows a hypothetical loanable funds market. Currently the market is in equilibrium. Lenders and borrowers expect the inflation rate for the next year to be 2 percent and the nominal interest rate is percent. Suppose that oil prices increase and as a result lenders and borrowers revise their expectations of inflation upwards to 4 percent. According to Fisher, this event creates an excess demand for loanable funds equal to million dollars in the very short run. However, soon the nominal interest rate changes percent and the real interest to rate equals percent. Ex-Ante Real Interest Rate --- 7.54 ՀԵՏԵԿ CI ԻՆՖԻՆ | [I F 0... ԶԱՆ ՀՍ NET ՖԿ Է իս էլի OT ORAL Tr

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The loanable funds theory of interest determines the rate of interest in the ec... View the full answer