What Is The Effect If Real Interest Rate Is Negative?
Can I get good/exact answers to my questions? Please help
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A negative real interest rate happens when the rate of inflation is greater than the nominal IR. So, the interest a borrower pays is minimal what the are paying. As the loan company wont make money from the loans, therefore, they will stop giving the loans till the nominal rate is more than inflation rate. The negative interest rate imbalance the whole market.
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If there is a negative real interest rate, it means that inflation is more than the interest. this would lead to commodity speculation and business cycles, as the borrower can profit from the interest.
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It's just a way of saying resessed or depressed economy. Only, no one wants to say it. A negative sounds a lot less scary.
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