Groundlearn / Glossary / Neutral rate
Neutral rate
Also called natural rate of interest, r-star. A CFA term, defined in plain English with the distinction examiners test.
What it means
The real policy rate that neither stimulates nor restrains the economy when output is at potential.
The exam angle
Unobservable and estimated. Most arguments about whether policy is tight are really arguments about where neutral sits.
Where it appears in the syllabus
- EconomicsCFA Level I · exam weight 6–9% · Market structures, business cycles, policy, trade and exchange rates.
Related terms
- Adverse selectionThe problem that arises when the party with better information self-selects into a transaction, leaving the…
- Business cycleThe recurring pattern of expansion, peak, contraction and trough in economic activity.
- Core inflationInflation excluding food and energy prices, which are volatile and often driven by supply rather than demand.
- Fiscal policyGovernment use of spending and taxation to influence aggregate demand.
- Gross domestic productThe market value of all final goods and services produced within a country in a period.
- InflationA sustained rise in the general price level, reducing the purchasing power of money.
Educational content only. This is not financial, investment, legal or regulatory advice. Check the official curriculum for your own exam before relying on any definition here.
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