ECONOMICS
INFLATION
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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3 percent
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6 percent
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9 percent
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18 percent
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Detailed explanation-1: -For example, if the rate of return for bonds you hold is 6% and the inflation rate is 3%, then the real rate of return will be 3%, not 6%.
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: -The correct answer is 3.5%. It is because the inflation rate is the difference between the nominal interest rate and the real interest rate.
Detailed explanation-4: -The real rate is equal to the nominal rate minus the rate of inflation so the real rate = 4%-6% =-2%. This is how inflation harms savers.