If the inflation rate decreased from 3.33% to 2.90% between October and November, while the nominal interest rate increased from 4.75% to 4.80%, what is the real interest rate in November?

There is the accordance or connection between nominal and real interest rates. It is basically possible to convert from nominal interest rates to real interest rates. According to the Fisher, there is a equation that's called the Fisher Equation:

Real interest rate ≈ nominal interest rate − inflation rate.

On our example,

Inflation rate in October- 3.33%

Inflation rate in November- 2.90%

Nominal interest rate in October- 4.75%

Nominal interest rate in November- 4.80%

In October,

Real interest rate=4.75%-3.33%=1.42%

In November,

Real interest rate=4.80%-2.90%=1.90%

As a result, we see that there is 1.90% real interest rate in November and the real interest rate has increased 0.48% in November compared to October.

ogorwyne ogorwyne · Answer 2 · 2022-06-01T16:42:09+02:00

The real interest rate in the month of November would be calculated as 1.9%

How to solve for the real interest rate

The formula is

Real interest rate = Nominal rate - Inflation rate

In the month of October

Real interest rate = 4.75 - 3.33

= 1.42%

In the month of November

4.80% - 2.90%

= 1.9%

Hence the real interest rate in the month of November is calculated as 1.9%