Unit 3.5·Macroeconomics

Real vs Nominal Interest Rates

Demand Management (Monetary Policy)

AO2

Syllabus requirement

Covers the difference and how to calculate real interest rates.

Assessment objectives
AO2 Application and Analysis

Summary

This topic explains the difference between nominal and real interest rates and how changes in the money supply and interest rates influence aggregate demand through expansionary and contractionary monetary policy. It covers the demand for and supply of money, how central banks affect interest rates (including quantitative easing), and the real-world consequences such as impacts on consumption, investment, exchange rates and inflation.

Related articles

Real-world examples for this unit