If The Nominal Interest Rate Is 5 Percent And The Real Interest Rate Is 7 Percent, Then The Inflation Rate Is (2023)

FAQs

What if the nominal interest rate is 5 percent and the inflation rate is 2 percent? ›

Answer and Explanation:

Hence; The Real Interest Rate = 5% - 2% = 3%

Answer and Explanation:

The nominal interest rate ( ) is 7%. The inflation rate (i) is 3%. The real interest rate is 4%.

Answer and Explanation:

Inflation premium = Nominal Interest Rate - Real Interest Rate = 8% - 5% = 3%.

The nominal interest rate is the stated interest rate of a bond or loan, which signifies the actual monetary price borrowers pay lenders to use their money. If the nominal rate on a loan is 5%, borrowers can expect to pay $5 of interest for every $100 loaned to them.

Answer and Explanation:

The correct answer is d) 5%.

Subtract the past date CPI from the current date CPI and divide your answer by the past date CPI. Multiply the results by 100. Your answer is the inflation rate as a percentage.

The real interest rate is essentially the nominal interest rate minus the inflation rate. So if the nominal rate is 6% and inflation is 4%, the real interest rate is 2%.

Unlike the nominal rate, the real interest rate takes the inflation rate into account. The equation that links nominal and real interest rates can be approximated as nominal rate = real interest rate + inflation rate, or nominal rate - inflation rate = real interest rate.

If the real interest rate is 6% and the nominal interest rate is 5%, then the economy is experiencing: deflation.

If the nominal interest rate is 4.2 percent and the rate of inflation is -0.5 percent, then the real interest rate is. -8.4 percent.

What is a 6% nominal interest rate? ›

Nominal Interest Rate

It is the stated interest rate paid or earned to the lender or by investor. So, if as a borrower, you get a loan of $100 at a rate of 6%, you can expect to pay $6 in interest. The rate has been marked up to take account of inflation.

Nominal and Effective Interest Rates

A statement that the "interest rate is 10%" means that interest is 10% per year, compounded annually. In this case, the nominal annual interest rate is 10%, and the effective annual interest rate is also 10%.

If a bank pays 5% annually on a savings account, then 5% is the nominal interest rate. So if you deposit $100 for 1 year, you will receive $5 in interest. However, that $5 will probably be worth less at the end of the year than it would have been at the beginning. This is because inflation lowers the value of money.

Answer. Thus, the real ir = (5 - 3)% = 2%. Option A is incorrect because the real ir is calculated incorrectly. Option B is incorrect because in the calculation of real ir, the inflation rate has not been taken into account.

Answer and Explanation:

Reason: Real interest rate can be found by subtracting inflation rate, which is 2 percent, from the nominal interest rate, which is 3 percent, and this gives 1 percent.

So if you have a savings account that pays a nominal interest rate of 1% but inflation is hovering around 2%, your actual rate of return is -1%. Nominal rates cannot be expressed as a negative figure.

To calculate the inflation rate, subtract the past cost of an item from its current cost, and divide that result by the past cost. Your result will be a decimal number, so multiply it by 100 to get a percentage.

The inflation rate can be estimated using a price index, which gives a sense of how overall prices in the economy are evolving. A common calculation is the percentage change from a year ago. For instance, if a price index is 2 percent higher than a year ago, that would indicate an inflation rate of 2 percent.