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What is the real interest rate if the nominal interest rate is ​% and the expected inflation rate is ​% over the course of a​ year?

Answers

Answer 1

The real interest rate in this case would be 3% is the answer.

The real interest rate can be calculated by subtracting the expected inflation rate from the nominal interest rate. Let's say the nominal interest rate is 5% and the expected inflation rate is 2%. To find the real interest rate, we subtract the inflation rate from the nominal interest rate: 5% - 2% = 3%.

So, the real interest rate in this case would be 3%.

The real interest rate is important because it reflects the purchasing power of money. It tells us how much the purchasing power of our money will change over time, after accounting for inflation. If the real interest rate is positive, it means that our money will grow in purchasing power. However, if the real interest rate is negative, it means that our money will lose purchasing power over time.

It's important to keep in mind that the real interest rate can vary depending on the inflation rate and the nominal interest rate.

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