Find out the real interest rate from nominal interest rate.
Answer to Problem 5SQ
Option ‘d’ is correct.
Explanation of Solution
Option (d):
The real rate of interest can be calculated as follows:
The calculated value of real interest rate is equal to the given value of 3 percent. Thus, option 'd' is correct.
Option (a):
The calculated value of real interest rate is less than the given value of 5 percent. Thus, option 'a' is incorrect.
Option (b):
The calculated value of real interest rate is less than the given value of 15 percent. Thus, option ‘b’ is incorrect.
Option (c):
The calculated value of real interest rate is less than the given value of 6 percent. Thus, option ‘c’ is incorrect.
Nominal interest rate: Nominal interest rate refers to the actual amount of money paid by the debtors to the creditors on a fixed amount of money.
Real interest rate: Real interest rate refers to the nominal interest rate which can be adjustable with inflation.
Inflation: Inflation refers to a continuous increase in the average price level in an economy.
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Chapter 7 Solutions
MACROECONOMICS FOR TODAY-W/LMS MINDTAP
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