How would the change in the nominal interest rate

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Intermediate Financial Management
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Chapter 23 / Exercise 23-4
Intermediate Financial Management
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3. How would the change in the nominal interest rate affect the real interest rate? Explain.4. Why is monetizing the debt inflationary?182 Advanced Placement Economics Macroeconomics: Student Resource Manual © Council for Economic Education, New York, N.Y.,
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Intermediate Financial Management
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Chapter 23 / Exercise 23-4
Intermediate Financial Management
Brigham/Daves
Expert Verified
Y
1. Assume fiscal policy is expansionary and the government funds the resulting deficit throughborrowing, In tÿigure 5-7.1, shift one curve in each graph to illustrate the effect of the fiscal policy,and label the new equilibrium values.
2. How ÿs611 the change in the equilibrium interest rate in the loanable funds market affect the short-run aggregate supply (SRAS) curve in the long run? Show on the AS/AD graph above, and explain.Advanced Placement Economics Macroeconomics: Student Resource Manual © Council for Economic Education, New York, N,Y.183
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Short-Run Phillips CurveThe Phillips curve relationship was first proposed by A. W. Phiÿps in 1958. Following up onPhilEps's research, other economists found an inverse relationship between the inflation rate and theunemployment rate. In other words, when inflation increased, the unemployment rate decreased, andwhen inflation decreased, the unemployment rate ir&reased. A graphic representation of this trade-offbecame lÿown as the Phillips curve.: ' ,-!I-7'I'!;:iil1I,• i.,j"i.,•Student Alert: Pay close attention to the axes when you graph Phillips curves!Figure 5-8.1 shows a Phillips curve. The curve illustrates the trade-off between inflation and unemployment.

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