Problem
UK money rates ease as inflation fears weaken Money market rates were around lies to 3/15 points lower in late trade as inflation fears faded slightly following Say's lower than expected UK Retail Price Index. A OA per cent rise in the RPI for March giving an annual rate of 7.9 per cent was slightly below market expectations and compared with 7.8 per cent in February. The number cased fears of any immediate rise in base rates, dealers said. 'The market heaved a sigh of relief after today's figures', one money broker said, 'Everybody is certainly more optimistic and upward pressure on rates appears to be off at the moment'.
What is meant by the phrase 'Money market rates were around t s to 3 15 points lower? Why are 'market expectations' important in the determination of nominal interest rates? Use your knowledge of the Loanable Funds Theory to explain why a rise in RN below market expectations would cause a change in the demand for, and supply of, loanable funds which would cause a reduction in the rate of interest. Does the influence of changes in the RN on nominal interest rates imply that the government is unable to control the rate of interest?
The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.