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According to economics, how are interest rates set in the marketplace?
in Economics and Finance by Gold Status (10,261 points) | 9 views

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Economics tells us that interest rates are set in the marketplace by the forces of supply and demand, where investors are suppliers of funds and borrowers are demanders of funds.

Taking the perspective of investors in analyzing market-determined interest rates, we can view an interest rate $r$ as being composed of a real risk-free interest rate plus a set of four premiums that are required returns or compensation for bearing distinct types of risk:
$r=$ Real risk-free interest rate $+$ Inflation premium $+$ Default risk premium $+$ Liquidity premium $+$ Maturity premium
by Gold Status (10,261 points)

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