The supply and demand for money intersect at the equilibrium real interest rate, while the supply and demand curves for loanable funds intersect at the equilibrium real interest rate.

Question

The supply and demand for money intersect at the equilibrium real interest rate, while the supply and demand curves for loanable funds intersect at the equilibrium real interest rate.​

Quizplus · Accepted Answer

Both the market for money and the market for loanable funds determine the equilibrium real interest rate. The supply and demand of money intersect at this rate because people demand money as a store of value and supply it as a means of exchange, which affects the interest rate they are willing to pay or accept. The supply and demand of loanable funds determine the interest rate that reflects the cost of borrowing and lending money, which affects the supply of and demand for loans. In both cases, the equilibrium real interest rate is where the supply and demand curves intersect.

The Supply and Demand for Money Intersect at the Equilibrium