Question

Suppose an economy has a real interest rate of 3% and an inflation rate of 5%. What's the exact nominal interest rate, and what's the approximate value of it

Answer 1

Answer:

Nominal interest rate= 0.08 = 8%

Explanation:

Giving the following information:

Real interest rate= 3%

Inflation rate= 5%

To calculate the nominal interest rate, we need to use the following formula:

Real interest rate= nominal interest rate - inflation rate

Nominal interest rate= real interest rate + inflation rate

Nominal interest rate= 0.03 + 0.05

Nominal interest rate= 0.08 = 8%