The relationship between the long-run real interest rate and potential output:
A) is direct.
B) is inverse.
C) is constant since the long-run real interest rate is primarily determined by risk.
D) depends on the actions of central bankers.

Question

Quizplus · Accepted Answer

The relationship between the long-run real interest rate and potential output is inverse. As potential output increases, demand for funds increases, resulting in an increase in interest rates.

The Relationship Between the Long-Run Real Interest Rate and Potential