Question

The textbook shows that the real interest rate in the U.S. has fallen from three percent in the year 2000 to less than one percent in 2018. What is one explanation for the decline in the real interest rate?

Answer 1

The fall in real interest rate will increase the level of savings and rise in the investment rate. This falling rates increase the overall development of the economy. There is also a fall in the inflation rate of the economy. The amount of physical investments like purchasing the machines and other productive capacity was mainly depends on real interest rates. Low real interest rate will make the borrowing of the machines more profitable. Lowering rates will leads to the movement of saving to consumption. The real interest rate adjustments help the maintenance of the inflation level also. This lowering interest rate make the domestic industry more self reliant. This lowering inflation will also reduce the expected inflation and the rise in current consumption and savings

answered by: anonymous