What happens to real interest rate and real exchange rate when U.S. citizens start to save more?

Question

Length: At least 7 paragraphs
Structure: Introduction; supporting arguments; examples; conclusion
Illustrations: use graphs if necessary
Diction: easy vocabulary
Sentence structure: Short, clear expressions

Answer 1

Sorry, I'm not going to do your school project for you.

Anyways you don't need to study that, it will never happen!!

You need to understand the current collapse of the US$ vs every other currency in the world..

1. Spending beyond their means to pay back.
2. Sub prime mortgages to people who can't afford to pay the monthly payments, when they need to remortgage at real interest rates.
3. Tax relief on mortgage interest payments, sets up a scenario where.......

People have no incentive to pay off any of the principle on their mortgage.
People relie on traditional home value increases to cover their low equity positions in there homes. Wrong!!
Can't remortgage because the debt on the house is more than the value of the property.
When they want to buy a new car, remortgage the home to get the tax relief to pay for the new car.

Equals a huge "house of Cards" which has now collapsed.

Saving is not an option for most. They are struggling to pay off debt. Forget about saving.

Answer 2

The Fed would not set expenditures of interest, the bond industry does. And the danger in mortgages is so severe in simple terms right this moment, that lenders are having to cost their loans above a common earnings margin to be waiting to sell them into the industry. in simple terms like human beings won't be able to sell their properties, lenders won't be able to sell their loans. it is the reason expenditures stay conscious, and classes have disappeared, and underwriting regulations are tight. This industry sucks! besides the shown fact that that is all we've. I shop hoping the gov't turns into in contact in some genuine way, no longer those a million/2 efforts we are seeing. at last, the inventories will come down, the lenders will return and we will have a 'commonplace' industry for a on a similar time as. yet do no longer anticipate it in the past 2010 a minimum of.

Answer 3

Higher savings will decrease the money demand and reduce the niminal interest rate. Higer savings will also reduce consumption in the shortrun and shift the AD curve or the IS curve (depending on the model you use) to the left so the general price level will fall. The real interest rate we can not estimate its change because it depends on the relative changes between the interest rates and inflation. It is more probable thou that it will remain unchanged

Answer 4

There isn't a right answer and well known economist disagree see
http://krugman.blogs.nytimes.com/2007/11/10/robert-rubin-is-wrong-about-the-dollar/