The most important determinant of the decisions to lend or borrow is the real rate of interest.

Question

Quizplus · Accepted Answer

The real rate of interest, which is the nominal interest rate adjusted for inflation, is a key factor that influences both lenders and borrowers in deciding whether to enter into a loan agreement. Higher real interest rates can make borrowing expensive for borrowers, while lower real interest rates can make lending less profitable for lenders. Thus, the real rate of interest plays a significant role in shaping the lending and borrowing decisions.

The Most Important Determinant of the Decisions to Lend or Borrow