If the real interest rate is 7 percent and the price level is falling at a...
If the real interest rate is 7 percent and the price level is falling at a rate of 3 percent, what is the nominal interest rate?
| a. |
4 percent |
|
| b. |
7 percent |
|
| c. |
3 percent |
|
| d. |
10 percent |
Homework Answers
The real interest rate is inflation adjusted nominal interest rate.
Hence it can be said that real interest rate is calculated as subtracting anticipated inflation rate from nominal interest rate.
Real interest rate= nominal interest rate – inflation
7%= nominal interest rate -3%
Nominal interest rate=7%+3%
=10%
Hence option d is the correct answer.
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