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Colleges in Washington state offer many programs in information technology and computer science. Productivity of workers...

  1. Colleges in Washington state offer many programs in information technology and computer science. Productivity of workers increases dramatically.
  1. Draw a graph to show how the increase in labor productivity will affect the loanable funds market.
  1. Would GDP increase or decrease?
  1. Can real interest rate be higher than nominal interest rate? Explain.
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Answer #1

1a) Due to college offering many programs in information technology and computer science which result in productivity increasing, there will be fall in demand of loanable funds because students will earn more money due to rise in their productivity.

1b) It will result in fall in rate of interest from "I" to "I1" which will influence investors to invest more in the market. Rise in investment level will raise GDP in the economy.

2) Real Interest = Nominal Interest - Inflation rate

Yes, it is true that real interest rate can be higher than nominal interest rate but inflation rate will be negative in that case. We call negative inflation as deflation where average price of all goods and services fall in the economy.

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