What Is an Equilibrium Rate of Interest?

Equilibrium interest rate refers to the interest rate when the money supply and money demand are kept consistent in the currency circulation. Corresponds to the specific interest rates of different banks for different situations.

Equilibrium interest rate

Right!

Equilibrium interest rate

The equilibrium interest rate is not fixed. when

(1)

I. Classical

The factors that affect the change in interest rates are mainly reflected by equilibrium interest rates.

For example: the impact of future interest rates on interest rates.

If people expect the interest rate to rise in the next year, the supplier of funds will not buy long-term bonds, but choose short-term investments in order to recover the funds in time for more favorable investments when interest rates rise. In this way, the supply curve of long-term bonds will shift to the left and the equilibrium interest rate will rise.

Conversely, the expected decline in future interest rates means that long-term bonds will become more favorable investments, which will increase the demand for long-term bonds and increase the supply of funds at various interest rates. This will shift the capital supply curve of long-term bonds to the right and lower the equilibrium interest rate.