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Question
Statistics
Posted 7 months ago
Frankland's citizens are living longer, which has resulted in more retirement saving.
Which of the following best describes the effect of this action on real interest rates in Frankland and the value of Frankland's currency, the percy?
Choose 1 answer:
A Real interest rates decrease and the value of the Frankland percy is unaffected.
(B) Real interest rates decrease and the Frankland percy depreciates.
(C) Real interest rates increase and the Frankland percy doesn't change.
(D) Real interest rates increase and the Frankland percy depreciates.
(E) Real interest rates decrease and the Frankland percy appreciates.
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Answer from Sia
Posted 7 months ago
Solution by Steps
step 1
To understand the impact of increased retirement savings on real interest rates, we consider the supply and demand for loanable funds. An increase in retirement savings implies an increase in the supply of loanable funds
step 2
According to the loanable funds theory, an increase in the supply of loanable funds, with demand remaining constant, will lead to a decrease in real interest rates
step 3
The effect on the value of Frankland's currency, the percy, is not directly indicated by changes in retirement savings. Other factors such as trade balances, inflation, and economic growth would need to be considered to determine the impact on currency value
Answer
A
Key Concept
Loanable Funds Theory
Explanation
An increase in retirement savings increases the supply of loanable funds, which typically leads to a decrease in real interest rates. The impact on the currency value is not directly related to changes in retirement savings.
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