Question

Suppose that the inflation rate is 2% and the real interest rate is 4%. What is the nominal interest rate?

Answer 1

Answer:

nominal interest rate= 0.07= 7%

Explanation:

Giving the following information:

Inflation rate= 3%

Real interest rate= 4%

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

Real interest rate= nominal interest rate - inflation rate

0.04 = nominal interest rate - 0.03

0.07= nominal interest rate