In the long run, the interest rate is determined in the _____ market.

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Question restatement: In the long run, the interest rate is determined in the _____ market.

Option 1: stock. The stock market deals with the prices of ownership shares in firms and does not set the overall long-run interest rate. While stock valuations can reflect expectations about the economy and rates, they are not the primary mechanism for determining the equilibrium interest rate in the long run.

Option 2: loanable funds. This is the mechanism described in classical and some modern macro models: the long-run interest rate is set by the interaction of saving (supply of loanable funds) and investment (demand for loanable funds) in the loanable funds market. It encapsulates the capital market where funds are allocated to their most productive uses, and the equilibrium real rate reflects time preference and productivity.

Option 3: money. The money market governs short-run nominal interest rates via the supply and demand for money and liquidity preferences. While it influences rates in the short run, the long-run determination is typically attributed to the loanable funds market rather than the money market.

Option 4: commodity. Commodities markets focus on physical goods and their prices, not on financial capital allocations that set the long-run interest rate. They do not provide the mechanism through which the long-run cost of borrowing is determined.

Overall, the reasoning centers on identifying the market that aggregates saving and investment decisions to establish the long-run rate. The loanable funds framework is the standard explanation for how the long-run interest rate is determined in many macroeconomic theories.

In the long run, the interest rate is determined in the _____ market.

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Similar Questions

Economists use _____ as a model to explain how savers and borrowers come together to determine the equilibrium rate of interest.

Businesses suddenly view investment projects as riskier. All else equal, what happens?

Ceteris paribus, a decrease in the demand for loanable funds

The demand for loanable funds includes demand for i. loans. ii. stocks. iii. bonds.

The figure above shows the loanable funds market. The equilibrium real interest rate is percent, and the equilibrium quantity of loanable funds is .

All other things being equal, a decrease in the supply for loanable funds:

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In the long run, the interest rate is determined in the _____ market.

View Explanation

Log in for full answers

Similar Questions

Economists use _____ as a model to explain how savers and borrowers come together to determine the equilibrium rate of interest.

Businesses suddenly view investment projects as riskier. All else equal, what happens?

Ceteris paribus, a decrease in the demand for loanable funds

The demand for loanable funds includes demand for i. loans. ii. stocks. iii. bonds.

The figure above shows the loanable funds market. The equilibrium real interest rate is ________ percent, and the equilibrium quantity of loanable funds is ________.

All other things being equal, a decrease in the supply for loanable funds:

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Stylized Writing Assistant

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The figure above shows the loanable funds market. The equilibrium real interest rate is percent, and the equilibrium quantity of loanable funds is .