The equilibrium interest rate equates
A) nominal and real interest rates.
B) the quantities demanded and supplied of loanable funds.
C) consumption and saving.
D) taxes and government spending.

Question

Quizplus · Accepted Answer

The equilibrium interest rate is the rate at which the quantity demanded and quantity supplied of loanable funds are the same. This occurs when borrowers are willing to borrow at a certain interest rate, and lenders are willing to lend at that same interest rate, resulting in a balance between the two and no excess supply or demand of loanable funds. A, C, and D are incorrect because they are not directly related to the determination of the equilibrium interest rate.

The Equilibrium Interest Rate Equates