The long-run equilibrium rate of interest in the capital market can be described as either the one at which the stock of capital stops increasing or the one at which there is no net saving.

Question

Quizplus · Accepted Answer

The long-run equilibrium rate of interest in the capital market is determined by the intersection of the supply and demand for loanable funds. At this equilibrium rate, the demand for funds equals the supply of funds, and both borrowers and lenders are satisfied. In the long run, this equilibrium rate of interest is characterized by either the point at which the stock of capital is no longer increasing, or the point at which there is no net saving, implying that investment equals saving. Therefore, option A is correct.

The Long-Run Equilibrium Rate of Interest in the Capital Market