Question

⦁ Explain how Real GDP and interest rate have changed over time. Explain the relationship between Real GDP and interest rate.

Answer 1

Thre is no direct relation between the real GDP interest rate growth rate the GDP of any countries varies depending up the numbers of factors determine the increase in the GDP of the countries.

For example GDP of counties increasing and resulting in the increase in the goods and services now when demand for goods and service is more than demand money increase and hence the real rate for interest rate declines in order to increase the supply of the money in the economy.

When GDP is equal to full employment situation rise in the real internet rate declines the demand for money and this way GDP and real interest rate mechanism works.