14-34 The real interest rate reflects the underlying real sector demand and supply for funds in denominated in the domestic currency.

Question

Quizplus · Accepted Answer

The real interest rate takes into account the inflation rate and reflects the actual purchasing power of the funds borrowed or invested. It is determined by the demand and supply for funds in the real sector of the economy, rather than just the nominal interest rate determined by the central bank or market forces. Therefore, it reflects the actual cost of borrowing or investing in domestic currency, and how much real return can be generated from it.

14-34 the Real Interest Rate Reflects the Underlying Real Sector