If the nominal interest rate in the loanable funds market rises by the same amount as the inflation rate, then:

Question

Quizplus · Accepted Answer

If the nominal interest rate and inflation rate both rise by the same amount, then the real interest rate (which is calculated as the nominal interest rate minus the inflation rate) remains unchanged. This means that there is no incentive for either borrowers or lenders to change their behavior, and the loanable funds market remains in equilibrium. Therefore, there is no shift in either the demand or supply of loanable funds, and the real interest rate does not change.

If the Nominal Interest Rate in the Loanable Funds Market