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# Rate of Interest

## Definition

The price paid for the use of borrowed capital, typically expressed as a percentage of the principal per year. This rate is determined by the balance between the supply of lendable capital and the demand for its use in productive enterprises.

## Source Chapter

Book II, Chapter 4

## Context

Smith provides a comprehensive analysis of how interest rates are determined, arguing that they naturally fall as the quantity of capital in a country increases and profitable employment opportunities become scarcer.

## Economic Domain

Distribution

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