The pure rate of interest is approximated by the:

A) rate that savings and loan associations charge on mortgage loans.
B) rate charged consumers by credit card companies.
C) rate paid on long-term government bonds.
D) announced rate at which commercial banks make business loans.

The pure rate of interest is the theoretical, risk-free rate of return. Long-term government bonds are considered to be the closest approximation of a risk-free investment, and therefore, the rate paid on long-term government bonds is the best approximation of the pure rate of interest. The rates charged by savings and loan associations, credit card companies, and commercial banks all include risk premiums, making them less accurate measures of the pure rate of interest.