AP MacroeconomicsFinancial Sector & Loanable Funds
Real Interest Rate
The nominal interest rate adjusted for inflation, reflecting the true cost of borrowing or return to saving.
It measures the actual purchasing power gained or lost over time. A positive real rate incentivizes saving, while a negative rate discourages it. It is the key determinant of investment in the loanable funds market.
Formula / Example
Real Interest Rate = Nominal Interest Rate - Inflation Rate
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Loanable Funds →
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Study module
The Loanable Funds Market →
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