Suppose that at a given point in time the rate of inflation in the economy is equal to 4 percent and the nominal interest rate is 7 percent.What is the real interest rate consistent with this situation?

Question

Quizplus · Accepted Answer

The real interest rate is the nominal interest rate adjusted for inflation. To calculate the real interest rate, we need to subtract the inflation rate (in this case, 4 percent) from the nominal interest rate (7 percent).

Real interest rate = Nominal interest rate - Inflation rate

= 7% - 4%

= 3%

Therefore, the real interest rate consistent with this situation is 3 percent.

Suppose That at a Given Point in Time the Rate