Question

49. The demand for real money rises if

a. the nominal interest rate falls.

b. the real output falls.
c. the nominal interest rate rises.

d. the real interest rate rises.

50. If the nominal interest rate is R = 0:10; or 10%; and the ináation rate is 0:03 or 3%; the implied real rate of interest is

a. 0:10 or 10%

b. 0:07 or 7%

c. 0:05 or 5%

d. 0:03 or 3%

I need help with both questions but 50. is my main concern.

Answer 1

49) Answer is A.

There is negative relationship between demand for money and real or nominal interest rate. If nominal interest rate rises demand for money falls and if nominal interest rate falls demand for money rises. Same is true with real interest rate.

So if nominal interest rate falls demand for money rises.

50) Answer is B. 0.07 or 7%

Nomianl interest rate = Real interest rate + inflation rate

Real interest rate = Nominal interest rate - inflation rate

= 10% - 3% = 7% or 0.07

#Please give thumps up...thank you