If the Real Interest Rate Is Above the Equilibrium Real

question 36

Multiple Choice

If the real interest rate is above the equilibrium real interest rate

• A) lenders will be unable to find borrowers willing to borrow all of the available funds and the real interest rate will fall.
• B) borrowers will be unable to borrow all of the funds they want to borrow and the real interest rate will rise.
• C) lenders will be unable to find borrowers willing to borrow all of the available funds and the real interest rate will rise.
• D) borrowers will be unable to borrow all of the funds they want to borrow and the real interest rate will fall.

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Definitions:

Variable Rate

An interest rate that fluctuates over time with market conditions, often applied to loans and credit.

Prime Rate

The prime rate is the interest rate that commercial banks charge their most creditworthy customers, often used as a benchmark for various loan products.

Bond Indenture

A legal contract between a bond issuer and the bondholders, outlining the terms, conditions, and covenants of the bond issue.

Floating-Rate Payments

Refers to interest or dividend payments that adjust periodically based on a reference rate, like LIBOR or the Prime Rate.