Coalitions of Borrowers and Lenders, Government-Regulated Lender, Interest Rate and Safe Central Bank in Equilibrium


It is well-known that price should be determined in equilibrium between supply and demand in a
free market economy. For example, the price of credit (interest rate) should be determined in
equilibrium between suppliers of credit (savers) and borrowers. Borrowers include the (i)
government that provides public service, (ii) business entrepreneurs that create private sector
employment which raises tax revenues needed to fund public service, and (iii) households that
support prices of produced goods and services and pay taxes for public services. Borrowers are,
therefore, as important as the savers for determination of the equilibrium interest rate in a free
market economy.

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