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March 20th, 2019, 04:03 AM   #1
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Joined: Mar 2017
From: Israel

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Macro-economics

Hello

Can you help me please about the next exercise:

A closed economy is in economic equilibrium of full employment.
The central bank bought bonds from public, so the amount of money increased by 1%.
Therefore, the prices will rise by 1% and there will be no change in private consumption and investment.

I didn't understand how the answer is "the prices will rise by 1% and there will be no change in private consumption and investment", because if the central bank bought bonds, in other words, the public took loans, then the interest rates will rise, therefore, the investment will decrease.
But I agree about private consumption.
About the prices, I didn't understand too.

If you didn't understand something, so tell me please and I will try to explain.

Thanks!
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