Natural rate of interest

Updated: Aug 20, 2021

The rate of interest which would be compatible with a stable level of economic activity in an economy with a constant price level. Attempts to set a market rate of interest below the natural rate lead in the short run to an expansion of real activity above the level consistent with stable prices, and in the longer run to inflationary rises in prices and money wages.

Reference: Oxford Press Dictonary of Economics, 5th edt.

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