Consider the long-run theory of investment,saving,and growth.In the long-run version of our macro model (with real GDP equal to Y*),the equilibrium interest rate is determined where

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In the long-run theory of investment, saving, and growth, the equilibrium interest rate is determined where desired national saving equals desired investment. This is because in the long-run, savings and investment determine the level of capital accumulation and ultimately determine the potential level of real GDP. Therefore, savings and investment must be equal in order to achieve long-run equilibrium.

Consider the Long-Run Theory of Investment,saving,and Growth