In the long run the real interest rate is determined by ________, and in the short-run the Federal Reserve can control the real interest rate by setting the nominal interest rate if inflation adjusts ________.
A)saving and investment; slowly
B)saving and investment; quickly
C)the Federal Reserve; to equal the increase in the money supply
D)the Federal Reserve; slowly

Question

Quizplus · Accepted Answer

The real interest rate is determined by the condition that national saving must equal investment in new capital goods. However, since inflation tends to adjust slowly, actions by the Fed to change the nominal interest rate generally lead the real interest rate to change by about the same amount in the short run.

In the Long Run the Real Interest Rate Is Determined