Re: dse 2012 doubts

Posted by Sumit on May 26, 2013; 10:01am
URL: http://discussion-forum.276.s1.nabble.com/dse-2012-doubts-tp7581291p7581301.html

@Mahi:
Suppose if we take investment depends upon real interest rate{which usually not bcoz for a investor cost of borrowing is equal to real int.rate(the real cost of borrowing)+expected inflation(this inculde in cost boz due to it in future he need to pay with less valuable money which indirectly increase it cost or we can say he need to pay more due to inflation boz Purchasing power of money is reduce) which is equal to nominal int. rate}..In the case where there is no inflation we can consider investment depends upon the real int rate...

Now, suppose if real int. rate falls as you mention investment increase you r absolutely correct about it...but I think the mistake you making here is that the investment demand curve will shift due to fall in int. rate but it is not like that there will me movement along a investment demand cure not shift...