ECONOMICS
GDP
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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12%
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15%
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9%
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None of the above
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Detailed explanation-1: -Answer and Explanation: Nominal interest rate = 4%.
Detailed explanation-2: -According to the equation given by Fisher, the nominal interest rate can be computed by adding the inflation rate and the real interest rate. This implies that the nominal interest rate will be 8% by following the fisher equation, according to the question.
Detailed explanation-3: -So, if the rate of inflation is-2% (2% deflation), a bank that loans money out for a 3% rate of nominal interest actually gets 3-(-2) = 5% real interest.
Detailed explanation-4: -To calculate a real interest rate, you subtract the inflation rate from the nominal interest rate. In mathematical terms we would phrase it this way: The real interest rate equals the nominal interest rate minus the inflation rate.