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How does an increase in the price level affect the equilibrium rate of interest?
Real Interest Rate
The interest rate adjusted for inflation, representing the true cost of borrowing and the real yield to savers.
Nominal Interest Rate
The interest rate as stated without adjustment for inflation, representing the actual percentage amount charged for borrowing money.
Inflation Rate
The percentage increase in the price level of goods and services in an economy over a given period of time.
Nominal Interest Rate
The percentage increase in money that borrowers pay to lenders, not adjusted for inflation.
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