If the Nominal Interest Rate Is 3% and If Prices

question 1

True/False

If the nominal interest rate is 3% and if prices fall by 2% per year, then the real rate of interest is approximately 5%.

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Definitions:

Equilibrium Interest Rate

The equilibrium interest rate is the rate at which the demand for funds equals the supply of funds in the financial markets, balancing savings and borrowing.

Total Output

The complete quantity of goods or services produced by an entity within a specific period.

Loanable Funds

Financial resources available for borrowing, which constitute the supply in the loan markets.