Macroeconomic data do not show a strong correlation between investment and interest rates. Use our model in
Question:
a. Suppose the demand for loanable funds were stable but the supply fluctuated from year to year. What might cause these fluctuations in supply? In this case, what correlation between investment and interest rates would you find?
b. Suppose the supply of loanable funds were stable but the demand fluctuated from year to year. What might cause these fluctuations in demand? In this case, what correlation between investment and interest rates would you find now?
c. Suppose that both supply and demand in this market fluctuated over time. If you were to construct a scatterplot of investment and the interest rate, what would you find?
d. Which of the above three cases seems most empirically realistic to you?
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Related Book For
Macroeconomics
ISBN: 978-1464168505
5th Canadian Edition
Authors: N. Gregory Mankiw, William M. Scarth
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