If the nominal interest rate is a constant 15 percent and anticipated inflation falls from 10 percent to 7 percent,the real interest rate would change from

Question

Quizplus · Accepted Answer

The real interest rate can be approximated by subtracting the inflation rate from the nominal interest rate. Initially, with a 10% inflation rate, the real interest rate is 15% - 10% = 5%. When the inflation rate drops to 7%, the real interest rate becomes 15% - 7% = 8%.

If the Nominal Interest Rate Is a Constant 15 Percent