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| Teaching Since: | May 2017 |
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MCS,PHD
Argosy University/ Phoniex University/
Nov-2005 - Oct-2011
Professor
Phoniex University
Oct-2001 - Nov-2016
During 2005, the Federal Reserve Bank raised interest rates in an
effort to prevent an increase in the rate of inflation.
a. What direct effects do higher interest rates have on household
and firm behavior?
b. One of the consequences of higher interest rates was that the
value of existing bonds (both corporate bonds and government
bonds) fell substantially. Explain why higher interest
rates would decrease the value of existing fixed-rate bonds
held by the public.
c. Some economists argue that the wealth effect of higher
interest rates on consumption is as important as the direct
effect of higher interest rates on investment. Explain what
economists mean by “wealth effects on consumption” and
illustrate with AS/AD curves.
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