Glossary · Micro · Macro · Money and banking

Real interest rate

The nominal interest rate minus the inflation rate: the true reward for lending and the true cost of borrowing in terms of goods. It is what saving and investment decisions respond to, and it is the price set in the loanable funds market.

Practice reading the loanable funds market graphTaught in: Limits of Fiscal Policy

Related terms

Nominal interest rateFisher equationLoanable funds market

More from money and banking

Commodity money vs fiat moneyFractional-reserve bankingMoneyMoney demandMoney marketMoney multiplier

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See the term used, not just defined.

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