In the long run, the real rate of interest does not depend on monetary policy but the nominal rate of interest does.

Question

Quizplus · Accepted Answer

The real rate of interest is the nominal rate adjusted for inflation, meaning it is influenced by factors outside of monetary policy such as the supply and demand for capital and productivity growth. However, the nominal rate of interest, which is set by the central bank through monetary policy, can impact inflation expectations and therefore affect the real rate of interest in the short run.

In the Long Run, the Real Rate of Interest Does