________ rate of interest creates equilibrium between the supply of savings and the demand for investment funds.
A) Nominal
B) Real
C) Risk-free
D) Inflationary

Question

Quizplus · Accepted Answer

Real interest rate takes into account the effects of inflation and reflects the true cost of borrowing and the true return on savings. It is the rate that creates equilibrium between the supply of savings and the demand for investment funds. Nominal interest rate does not take into account the effects of inflation, so it can be misleading. Risk-free rate refers to the rate of return on risk-free assets like government bonds, and it is not necessarily the same as the equilibrium interest rate. Inflationary rate refers to the rate at which prices are increasing, not the rate of interest.

________ Rate of Interest Creates Equilibrium Between the Supply of Savings