How the policy rate is set and how this rate impacts borrowing

1. Explain why consumers borrow and smooth consumption and how they make this decision.
2. Explain how the policy rate is set and how this rate impacts borrowing.
3. What are the determinants of investment and why is investment so volatile? Why is investment
   a lead indicator of GDP growth?
4. What is inflation? How do we measure it? How does inflation redistribute purchasing power?

Sample Solution