The equilibrium interest rate in a country (the rate at which a balance between growth and inflation is achieved) is referred to as the neutral rate. It is generally thought that the neutral rate is composed of an inflation component and a real growth component. If inflation is targeted at 3% and the economy is expected to grow by 2%, then the neutral rate would be 5%. Exports and consumer spending are components of GDP and are thus already figured into the 2% GDP growth. |
