If the entire population was living at the subsistence level, time preferences for current consumption would be
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, savings would be
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, interest rates would be
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, and capital formation would be
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. Producers' expected returns on their business investments set a(n)
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limit on how much they can pay for savings, while consumers' time preferences for consumption establish how much consumption they are willing to delay, and, consequently, how much they will
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at different interest rates. In addition,
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risk and
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inflation lead to higher interest rates.