The real interest rate, in the long run, is determined by
A)the exchange rate.
B)the level of taxes.
C)the balancing of the total spending with the supply of goods and services in the economy.
D)the budget deficit.
E)the rate of inflation.

Question

Quizplus · Accepted Answer

The real interest rate, in the long run, is determined by the balancing of the total spending with the supply of goods and services in the economy. This is because the level of real interest rates determines the demand for credit, which in turn affects aggregate demand and the production of goods and services. Therefore, in the long run, the real interest rate will adjust to maintain equilibrium between total spending and the supply of goods and services. The other options listed are not direct determinants of the real interest rate in the long run.

The Real Interest Rate, in the Long Run, Is Determined