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Unformatted text preview: Real I rate= Nominal I rate inflation rate 3% = 5% - 2% means 3% more goods and services Nominal has to be > 0, real can be if inflation is very high Demand for loanable funds the relationship between the quantity of loanable funds demanded and the real interest rate (CP) As real interest rate goes up less profitable hence the graph has a sorta like demand curve Real interest rate as the cost of borrowing Supply of loanable funds quantity loanable funds supplies vs interest rate Higher interest rate more funds available to be borrowed, normal upward sloping supply curve...
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- Winter '07
- Opportunity Cost