Influences on interest rates (1 Viewer)

Vultrahd

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If inflation is expected to rise in the economy next year, what would happen to the demand and supply of loanable funds and thus, the interest rate?
 

#RoadTo31Atar

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If inflation is expected to rise then there will tightening of MP thus higher interest rates, a tightening leads a to a fall in liquidity through OMOs when the government buys CGSs. This should decrease the supply of loanable funds and higher interest rates should lead to a decrease demand for loans.
 

ultra908

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Also if inflation is expected to rise, investors may chose to move to markets with lower inflation, and consumers are more likely to spend rather than save. This further decreases the supply of loanable funds.
 

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