DSE 2010 doubt

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DSE 2010 doubt

Halflife
Screenshot_20170619-182235.png
Q14) Answer : C
How does it not affect the investment function?
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Re: DSE 2010 doubt

AdityaGarg13
Investment depends on real interest rate, not on nominal one.
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Re: DSE 2010 doubt

Halflife
But in IS-LM framework we took the investment function as : I = I(bar) - b.i and proceeded to include it with the NOMINAL interest rate on the vertical axis. Then how can it be real?
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Re: DSE 2010 doubt

AdityaGarg13
I don't think it's nominal rate.

Refer Investment chapter in Mankiw book.
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Re: DSE 2010 doubt

Halflife
I did a DSE question a while back in which they asked if the interest rate used in it is nominal or real and there it was nominal.
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Re: DSE 2010 doubt

Halflife
In reply to this post by AdityaGarg13
Some sites on Google say it's real so you're correct. Thanks.
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Re: DSE 2010 doubt

AdityaGarg13
You can grasp there are so many questions directly based on fundamentals.

 

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Re: DSE 2010 doubt

Halflife
Yeah seems DSE is also hell bent on basics oriented questions. God knows what'll happen on the D-day.
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Re: DSE 2010 doubt

AdityaGarg13
Even though various topics have weightages and are repeated there can be shocker like econometric last time and hence we should have some idea about everything. Let's hope what we read is in the exam.
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