The ________ rate of interest creates equilibrium between the supply of savings and the demand for investment funds.
A) nominal
B) real
C) risk-free
D) inflationary

Question

Quizplus · Accepted Answer

The real rate of interest takes into account the effects of inflation and reflects the true cost of borrowing or the true return on savings. By using the real rate of interest, it ensures that the supply of savings and the demand for investment funds are balanced and that borrowers and lenders are not affected by unexpected inflation or deflation. Nominal rate of interest does not account for inflation, risk-free rate is too specific, and inflationary rate is not a commonly used term in economics.

The ________ Rate of Interest Creates Equilibrium Between the Supply