Chapter 5 The Economics of Interest-Rate Fluctuations

Chapter Objectives

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

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