If the Real Interest Rate Is Negative, It Must Mean

question 104

Multiple Choice

If the real interest rate is negative, it must mean that:

• A) in the short run, bond rates can be very volatile.
• B) in the short run, the real interest rate equals the marginal product of capital.
• C) in the short run, the real interest rate can deviate from the marginal product of capital.
• D) it is difficult to predict long-term interest rates.
• E) there is no relationship between long- and short-term interest rates.

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Definitions:

Equilibrium Price

The market price at which the quantity of goods supplied is equal to the quantity of goods demanded, achieving market balance.

Equilibrium Quantity

The quantity of goods or services that is supplied and demanded at the equilibrium price, where demand and supply are equal.

Equilibrium Price

The cost at which the amount of a product or service that consumers want to purchase matches the amount available, leading to equilibrium in the market.

Supply Decreases

A reduction in the amount of a product or service that is available for sale, often resulting in higher prices if demand remains the same.