| rate of interest | The price of acquiring credit, usually expressed as a ratio of the cost of securing credit to the total amount of credit obtained.
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| price of credit | The rate of interest that must be paid to secure the use of borrowed funds.
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| risk-free rate of interest | The rate of return on a riskless asset, often called the pure rate of interest or the opportunity cost of money.
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| classical theory of interest rates | An explanation of the level of and changes in interest rates that relies on the interaction of the supply of savings and the demand for investment capital.
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| substitution effect | Positive relationship between rate of interest and volume of savings in the economy.
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| liquidity preference theory of interest rates | An explanation of the level of and change in interest rates that focuses on the interaction of the supply of and demand for money.
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| loanable funds theory of interest rates | The credit view of what determines the level of and changes in interest rates that focuses on the interaction of the demand for and the supply of loanable funds (credit).
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| income effect | The relationship between interest rate levels and the volume of saving in the economy that argues that the advent of higher interest rates may induce savers to save less because each dollar saved now earns a higher rate of return.
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| wealth effect (of saving and interest rates) | Contends that the net wealth position of savers (the balance in their portfolios between debt and financial assets) determines how their desired levels of saving will change as interest rates change.
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| rational expectations theory of interest rates | An explanation of the level of and changes in interest rates based on changes in investor expectations regarding future asset prices and returns.
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