Question

Would the effect on aggregate demand be larger if the federal reserve held the money supply constant in response, or if the fed were committed to maintaining a fixed interest rate?

Answer 1

The increase in government spending will have a larger effect on aggregate demand and would be larger if the Fed were committed to maintaining the fixed interest rate since in this case the negative crowding out effect would be compensated for.

A fixed interest rate is an unchanging fee charged on legal responsibility, such as a loan or mortgage. it might follow during the complete time period of the mortgage or for simply a part of the term, however, it stays the same in the course of a set period.

A fixed interest rate mortgage is a mortgage in which the interest price would not differ all through the constant charge period of the mortgage. This lets the borrower to as it should be are expecting their future payments. Variable fee loans, by way of comparison, are anchored to the prevailing bargain fee.

A set interest price is a price that doesn't alternate at some stage in your mortgage, or at least for a particular length. united kingdom banks frequently appoint fixed interest costs for mortgages and financial savings money owed. as an example, banks will provide a 5% constant hobby charge in your savings for 365 days, which then drops to at least one% or much less.

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