In a message dated 12/7/03 4:03:55 PM, [EMAIL PROTECTED] writes:

>So the question is, why at the zero rate was there not greater demand to
>borrow?  The answer may well be that the expected future inflation and
>interest rates were highly uncertain, and the transaction costs of getting
>and exiting from a loan were high, and there was a high level of risk
>aversion.  What counts is not just the cost of borrowing but also the
>expected return on the borrowings, and if business conditions are bad,
>the demand for loanable funds may be low because of uncertain earnings
>asset appreciation.  The inflation part of the nominal interest has to
>paid in actual dollars, and so high rates of inflation may well deter
>demand.  A low real rate of interest induces more borrowing, other things
>equal, but with higher inflation and greater business uncertatainty, other
>things may not be equal.

In other words, a person won't borrow even at a 0% rate of interest if he
expects a negative rate of return were he to invest any funds he borrowed?


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