--- Marko Paunovic <[EMAIL PROTECTED]> wrote:
> OK. Then, as long as the expected profit from building a factory is
> higher than zero, I would not lend the money at zero interest rate.

If at a zero rate of interest, the quantity of savings exceeds the quantity
of borrowings, savers would earn zero interest.  Borrowers would just pay
the overhead costs and a risk premium and an inflation premium.  You as
lender would earn a wage for engaging in the lending business, but the pure
interest rate would be zero.  The reason the interest rate is positive is
that at a zero rate, the quantity of funds demanded for loans exceeds the
quantity of loanable funds from savings, so this scarcity drives up the
rate just as with other prices.

Fred Foldvary


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