In the long run, the real interest rate is determined by
A) Fed actions.
B) the expected inflation rate.
C) the nominal interest rate.
D) saving supply and investment demand.
E) the multiplier effect.

Question

Quizplus · Accepted Answer

The real interest rate is determined by the market forces of saving supply and investment demand in the long run. This is because in the long run, nominal interest rates will adjust to inflation expectations, and the real interest rate will reflect the equilibrium between saving and investment. Fed actions, the expected inflation rate, and the multiplier effect may impact short-term interest rates or inflation expectations, but they do not determine the long-term real interest rate.

In the Long Run, the Real Interest Rate Is Determined