The real risk-free rate is affected by two factors:
A) The relative ease or tightness in capital markets and the expected rate of inflation.
B) The expected rate of inflation and the set of investment opportunities available in the economy.
C) The relative ease or tightness in capital markets and the set of investment opportunities available in the economy.
D) Time preference for income consumption and the relative ease or tightness in capital markets.
E) Time preference for income consumption and the set of investment opportunities available in the economy.

Question

Quizplus · Accepted Answer

The real risk-free rate is primarily influenced by individuals' time preference for income consumption and the set of investment opportunities available in the economy. These factors determine how much people are willing to save or invest at present, affecting the real interest rates independent of inflation or market liquidity conditions.

The Real Risk-Free Rate Is Affected by Two Factors