Asked by Heath Gillette on May 08, 2024
Verified
If the expected inflation rate is 4 percent and the nominal interest rate is 9 percent,the expected real interest rate is _____.
A) 13 percent
B) −5 percent
C) 9 percent
D) −13 percent
E) 5 percent
Expected Inflation Rate
The rate at which consumers, businesses, and investors anticipate prices will rise in the foreseeable future, influencing economic behavior.
Nominal Interest Rate
The interest rate before adjustments for inflation, reflecting the rate of return as stated by the financial institution.
Real Interest Rate
The interest rate adjusted for inflation, reflecting the true cost of borrowing or real yield on an investment.
- Learn the process of identifying real and nominal interest rates and their linkage to inflation.
Verified Answer
CT
Camila TrimminoMay 09, 2024
Final Answer :
E
Explanation :
The expected real interest rate can be calculated using the formula: real interest rate = nominal interest rate - expected inflation rate. Therefore, 9% - 4% = 5%.
Learning Objectives
- Learn the process of identifying real and nominal interest rates and their linkage to inflation.