You observe a nominal rate of 14.23% at the same time you learn that the real rate is 2.12%. What is the inflation rate?
The Fisher equation, which shows the exact relationship between nominal interest rates, real interest rates, and inflation, is:
(1 + R) = (1 + r)(1 + h)
(1 + 0.1423) = (1 + 0.0212)(1 + h)
h = [(1 + 0.1423) / (1 + 0.0212)] – 1
h = 0.1186 or 11.86%
You observe a nominal rate of 14.23% at the same time you learn that the real...
The nominal interest rate is the: same as the real interest rate. rate of interest that investors pay to borrow money. rate of inflation minus the real rate of interest. real rate of interest minus the rate of inflation.
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