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Interest Tutorial: Supply and Demand Curves, Basis Point

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SQ5-4,19 6-3

Explain why the supply curve in the classical theorey of interest rates has a positive slope. Why does the demand curve in the classical theory have a negative slope?

What assumptions underlie the rational expectations view of interest?

What exactly is a basis point? Why is it an important interest rate measure?

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Solution Summary

This solution helps to clarify concepts concerning the supply curve and the demand curve in the classical theory of interest rates. Furthermore, the solution outlines the assumptions that underlie the rational expectations view of interest. Additionally,it discusses what a basis point is and why it is an important interest rate measure. It also includes two reference sources for further research on the topic.

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Explain why the supply curve in the classical theory of interest rates has a positive slope. Why does the demand curve in the classical theory have a negative slope?

The supply curve in the classical theory of interest rate has a positive slope because an increase in interest rate would cause the cost of ...

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  • MBA, Indian Institute of Finance
  • Bsc, Madras University
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