StudentShare solutions
Triangle menu

Affect of Interest rate on Equilibrium in Short and Long Run - Essay Example

Extract of sample
Affect of Interest rate on Equilibrium in Short and Long Run

Interest rates are used as tools by central banks to control inflation. When Bank believes inflation is beginning to rise, it raises interest rates to cool the economy and vice versa. Therefore, the long term affect of raising interest rate will be to reduce inflation. For the constructers of apartments, this might mean relatively cheaper production due to cheaper cost of resources. The supply curve will therefore shift to the right (fig.4).
Constructers will be able to provide more value for the same price to the customers. Also, many of the customers who might have refused to invest in property initially when the interest price increased would now be more in terms with the market and willing to invest. In the longer run, increased interest rate would have made its impact of controlling inflation and prices for other goods would be more stable. All these factors would result in increasing the demand and would result in a shift in demand curve to the right (fig.5). ...Show more

Summary

A rise in interest rate means, borrowing and spending becomes less attractive and saving becomes more attractive. Subsequently, lesser activity is seen in the economy. For constructers of residential apartments, this would mean a decrease in demand. At this stage, it is assumed that supply and the cost of the apartments remains constant.
Author : carolyn01
Affect of Interest rate on Equilibrium in Short and Long Run essay example
Read Text Preview
Save Your Time for More Important Things
Let us write or edit the essay on your topic
"Affect of Interest rate on Equilibrium in Short and Long Run"
with a personal 20% discount.
Grab the best paper

Related Essays

What Determines the Level of Interest Rate in the UK And How the Changes in Interest Rate Affect Economic Growth
The Determinants of the Level of Interest Rates In the UK And How the Changes in Interest Rate Affect Economic Growth Monetary policy involves alterations in the interest base rates thus influencing growth rate of aggregate demand, supply of money and ultimately the fluctuation of prices.
5 pages (1250 words) Essay
Explain the main determinants of exchange rate behavior in the long run and in the short run. In the context of your analysis di
Though foreign currency could be accessed in other forms such as exports and maybe in the tourism sector, the foreign exchange market has withstood the test of time as being the best and easiest way to acquire foreign currency. However, this market has been observed to be among the most volatile markets in the world.
8 pages (2000 words) Essay
How equilibrium occurs using the aggregate supply (AS) and aggregate demand (AD) framework
The aggregate demand curve reflects price levels for goods and services produced domestically and which consumers, government, foreigners and businesses are willing to purchase. It slopes downwards to the right with the decrease in price levels with the increase in demand.
14 pages (3500 words) Essay
Consider a perfectly competitive market in long-run equilibrium where all firms operate under the same cost conditions. Suppose
Explain graphically and verbally what happens to the market in the short run and in the new long-run equilibrium if factor prices and demand are assumed to remain the same as before. Hint: You have to use two parallel diagrams, one for an individual (representative) firm and one for the industry.
4 pages (1000 words) Essay
Short-run Phillips curve & the long-run Phillips curve
Short-run Phillips curve & the long-run Phillips curve How do active and passive views of these concepts differ? The Philips Curves are fundamental to the study of economics. The Curves represent the relationship between inflation and unemployment rates and, they have cross relationships with aggregate supply curves.
3 pages (750 words) Essay
Factors that affect the long-run rate of economic growth
Microeconomic Essay Name Institution Factors that affect the long-run rate of economic growth When factors of production are increased in terms of quantity and quality, there is a resultant Long-run economic growth. These factors of production are: natural resources, capital resources, labor resources and Entrepreneurship.
6 pages (1500 words) Essay
Theories of Exchange Rate Determination
It is not that an unexpected increase or decrease in the foreign currency may not be profitable and will always cause a loss.But this entire uncertainty hampers businesses and overall economic growth.Furthermore due to the volatile and unpredictable nature of the forex markets during times of political or economic crisis the forex markets carry a considerable risk for the multinational firms.
11 pages (2750 words) Essay
The determinants of the rate of interest and the significance of interest rates to policy makers and other economic actors
A lot of investment goes into the purchase of capital goods and the most integral thing here is funds. Funds is also called as financial capital, The supplier of this financial capital to the entrepreneur so that he may invest it in real capital assets like machinery and others, will be paid on the market rate of interest by the entrepreneur.
13 pages (3250 words) Essay
Economics
Long run is defined as the period of time when all factors of production are variable in supply. There can be lot of variables in the long run that might need to be considered, but for current assignment let us
2 pages (500 words) Essay
Get a custom paper written
by a pro under your requirements!
Win a special DISCOUNT!
Put in your e-mail and click the button with your lucky finger
Your email
YOUR PRIZE:
Apply my DISCOUNT
Comments (0)
Rate this paper:
Thank you! Your comment has been sent and will be posted after moderation