Asked by Emanuela Tigistu on Apr 29, 2024
Verified
If the inflation rate doubles and the nominal interest rate remains constant, the real interest rate must be halved.
Real Interest Rate
The interest rate adjusted for inflation, reflecting the true cost of borrowing or the true return on savings.
Nominal Interest Rate
The interest rate before adjustments for inflation, representing the face value of financial transactions.
Inflation Rate
The rise in the average cost of goods and services within an economy over a specific period, expressed as a percentage.
- Acquire knowledge about the correlation between real, nominal interest rates, and inflation dynamics.
- Understand the impact of inflation rate on real income and decision-making regarding consumption.
Verified Answer
ZK
Zybrea KnightMay 06, 2024
Final Answer :
False
Explanation :
The real interest rate is calculated by subtracting the inflation rate from the nominal interest rate. If the inflation rate doubles and the nominal interest rate remains constant, the real interest rate will decrease, but not necessarily halved.
Learning Objectives
- Acquire knowledge about the correlation between real, nominal interest rates, and inflation dynamics.
- Understand the impact of inflation rate on real income and decision-making regarding consumption.