Which of the following statements concerning the "pure" rate of interest is true?
A) It represents the true opportunity cost of holding idle money
B) A rate of interest approximated by the yield to maturity on long-term U.S. government bonds
C) Rate of interest at which the government can borrow
D) Determined according to the classical theory of interest by the interplay of the supply of savings and the demand for investment capital
E) All of the above are true

Question

Quizplus · Accepted Answer

The "pure" rate of interest is the true opportunity cost of holding idle money, and it is determined by the interplay of the supply of savings and the demand for investment capital. The yield to maturity on long-term U.S. government bonds is a good approximation of the pure rate of interest, and the government can borrow at a rate that is close to the pure rate of interest.

Which of the Following Statements Concerning the "Pure" Rate of Interest