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Module 1: Economic activity

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Real Interest Rates

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Economics - Economic Activity - Supply Factors - Real Interest Rates

Real Interest Rates

For most businesses, the cost of capital is the real interest rate, which
is the nominal rate of interest [1] less the inflation rate. A decrease in
nominal interest rates and, consequently, real interest rates, affects
firms who pay a variable rate of interest [2] on borrowings. The cost of
financing the loan falls, profit rises and increased production is
encouraged.

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Links:
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[1] http://alison.com/#
[2] http://alison.com/#