What is Real Interest Rate?

Kirtisoni

MP Guru
Hi Guys i am Looking for Information on Determination of the Real Interest Rate. Can anyone like to help ?

Determination of the Real Interest Rate​

Thus far, we have simply assumed that the real rate of interest was determined exogenously (e.g., given by God or Nature). As far as individuals (or small open economies) go, this seems like an appropriate assumption to make, since if decision-making agents are small relative to the world economy, then their individuals actions are unlikely to affect market prices. That is, from an individual’s perspective, it is ‘as if’ market prices bounce around exogenously according to some law of nature.

But it remains true that the real interest rate is a market price and that market prices are determined, in part, by the behavior of individuals collectively. In other words, while it may make sense to view some things as being exogenous to the world economy (e.g., the current state of technical knowledge), it does not make sense to think of a market price in the same way. It makes more sense to think of market prices as being determined endogenously by aggregate supply and demand conditions.

In order to think about what determines the real rate of interest, we will have to think of things in terms of the world economy, or at the very least, a large open economy (like the United States). Unlike a small open economy (e.g., individuals or small countries), the world economy is a closed economy. Thus, while it may make sense for an individual country to run a current account surplus (or deficit), it does not make sense for all countries to run a surplus (or deficit) simultaneously (unless you believe that some world citizens are trading with aliens). As far as the world is concerned, the current accounts of all countries together must sum to zero.
 
Hi Guys i am Looking for Information on Determination of the Real Interest Rate. Can anyone like to help ?

As i saw that you need information on the real interest rate, so that i am uploading a document which will help you to get all the information regarding real interest rate.
 

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