If the annual real rate of interest is 3.5%, and the expected inflation rate is 3.5%, the nominal rate of interest would be approximately
A) 0%.
B) 3.5%.
C) 12.25%.
D) 7%.

Name: If the annual real rate of interest is 3.5%, and the expected inflation rate is 3.5%, the nominal rate of interest would be approximately A) 0%. B) 3.5%. C) 12.25%. D) 7%.
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Question

Quizplus · Accepted Answer

The nominal interest rate can be approximated using the Fisher equation: nominal rate ≈ real rate + inflation rate. Therefore, 3.5% + 3.5% = 7%.

If the Annual Real Rate of Interest Is 3