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5: The Economics of Interest-Rate Fluctuations

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    Learning Objectives

    By the end of this chapter, students should be able to

    • Describe, at the first level of analysis, the factors that cause changes in the interest rate.
    • List and explain four major factors that determine the quantity demanded of an asset.
    • List and explain three major factors that cause shifts in the bond supply curve.
    • Explain why the Fisher Equation holds; that is, explain why the expectation of higher inflation leads to a higher nominal interest rate.
    • Predict, in a general way, what will happen to the interest rate during an economic expansion or contraction and explain why.
    • Discuss how changes in the money supply may affect interest rates.

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