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Loanable funds crowding out
Loanable funds crowding out
Loanable funds crowding out
Loanable funds crowding out
Loanable funds crowding out
Loanable funds crowding out
Loanable funds crowding out
Loanable funds crowding out
Loanable funds crowding out
Loanable funds crowding out
Loanable funds crowding out
Loanable funds crowding out
Loanable funds crowding out
Loanable funds crowding out
Loanable funds crowding out
Loanable funds crowding out
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Loanable funds crowding out

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  • 1. 1. What happened to the nominal interest rate in this market? 2. Identify two possible causes of this Interest Supply Rate 6% 5% Demand $1,200 $1,300 Loanable Funds
  • 2. Real interest rate • Easy just …. • Real i = nominal i - CPI (or inflation rate) • So in theory….. • Nominal rate 3.5 %, CPI: 3.5% OR • Nominal rate 8.5 %, CPI: 10 %
  • 3. Graph on the white “boards” Market conditions change so business increase capital spending Fed buys $3 TRILLION worth of bonds during Open Market Operation Consumers spend 5%, but economy is at “full employment” Unemployment rate jumps from 6 % to 12% US government deficit spends
  • 4. Paradox of thrift
  • 5. Crowding out effect
  • 6. Gov debt as a percent of GDP
  • 7. Graph on page 571

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