Question

Narnia, a developed open economy, has been experiencing double-digit inflation and a decelerating output growth for the last four quarters. Jonathan Mathews and Ben Hall, two market analysts, are discussing the various measures that can be adopted by the concerned authorities to curb inflation and boost production in the economy. Jonathan thinks that the central bank should raise the nominal interest rate to control inflation. This, he feels, will also contribute to an increase in the aggregate supply of funds available for investment in the economy. Ben however disagrees. According to him, an increase in the nominal interest rate will lower investment, leading to a decline in aggregate production by firms. This, in turn, will increase the shortage in the economy and prices will rise further. Which of the following questions would be most important to answer in order to determine whether Jonathan's claim is accurate?

A. By how much does the current interest rate on bank deposits differ from the interest rates charged on loans?
B. Is structural unemployment in Namia greater than its neighboring economies?
C. Would the change in the nominal interest rate be greater than the change in prices?
D. What was the average change in the aggregate supply of loanable funds in the last five years?)
E. What percentage of tax revenue does the government of Namia spend on infrastructure?

Answer 1

Option A, By how much does the current interest rate on bank deposits differ from the interest rates charged on loans?

Step-by-step explanation:

When you're at a financial institution to open a bank account, each type of savings account will end up coming with an interest rate that is distinct, based on the bank and the account.

The Net Interest Margin (NIM), something that most banking companies report on a quarterly basis, is a distinction between loans and deposit interest.

Obviously, the vertiginous variety of financial options and interest rates used only to set interest rates for just the loans eventually complicated things. It's more difficult.