Negative inflation (deflation), nominal interest rates, and real rates. The Republic of Northern Lights, a small, stable country in the North Atlantic, is experiencing a negative inflation rate (deflation) at this time. The annual inflation rate is - 2%. If the nominal rate of interest is 6.5%, what are the real interest rates that the Northern Lightians are getting as a reward for waiting? Use the approximate nominal interest rate equation and the true nominal interest rate equation to determine the rates. Using the approximate nominal interest rate equation, what is the real interest rate that the Northern Lightians are getting as a reward for waiting? |% (Round to two decimal places.)
Negative inflation (deflation), nominal interest rates, and real rates. The Republic of Northern Lights, a small, stable country in the North Atlantic, is experiencing a negative inflation rate (deflation) at this time. The annual inflation rate is - 2%. If the nominal rate of interest is 6.5%, what are the real interest rates that the Northern Lightians are getting as a reward for waiting? Use the approximate nominal interest rate equation and the true nominal interest rate equation to determine the rates. Using the approximate nominal interest rate equation, what is the real interest rate that the Northern Lightians are getting as a reward for waiting? |% (Round to two decimal places.)
Chapter9: Forecasting Exchange Rates
Section: Chapter Questions
Problem 25QA
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Transcribed Image Text:Negative inflation (deflation), nominal interest rates, and real rates. The Republic of Northern Lights, a small, stable country in the North Atlantic, is experiencing a
negative inflation rate (deflation) at this time. The annual inflation rate is - 2%. If the nominal rate of interest is 6.5%, what are the real interest rates that the Northern
Lightians are getting as a reward for waiting? Use the approximate nominal interest rate equation and the true nominal interest rate equation to determine the rates.
Using the approximate nominal interest rate equation, what is the real interest rate that the Northern Lightians are getting as a reward for waiting?
% (Round to two decimal places.)
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