The neutral interest rate occurs when the economy is:

Question

Quizplus · Accepted Answer

The neutral interest rate occurs when the economy is at its potential, meaning that it is operating at full capacity without generating inflationary or deflationary pressures. At this point, the interest rate neither stimulates nor restrains economic activity, and it is in equilibrium. When the economy is above its potential, there is upward pressure on prices, and the central bank may need to raise interest rates to cool down the economy. When the economy is below its potential, there is downward pressure on prices, and the central bank may need to lower interest rates to stimulate the economy.

The Neutral Interest Rate Occurs When the Economy Is