Asked by Anthony Amaya on Jun 03, 2024
Verified
If the nominal rate of interest is 8 percent and the real rate of interest is 3 percent, the inflation rate must be 11 percent.
Nominal Rate of Interest
The rate of interest before adjustments for inflation, reflecting the market rate at which money can be borrowed.
Inflation Rate
The percentage increase in the price level of goods and services in an economy over a period of time, usually a year.
- Comprehend the connection among nominal and real interest rates, inflation, and the decision-making process in investments.
Verified Answer
MV
Miloslav VojtaJun 08, 2024
Final Answer :
False
Explanation :
The Fisher equation states that the nominal interest rate is approximately equal to the sum of the real interest rate and the inflation rate. Therefore, if the nominal rate is 8% and the real rate is 3%, the inflation rate would be approximately 5%, not 11%.
Learning Objectives
- Comprehend the connection among nominal and real interest rates, inflation, and the decision-making process in investments.