QuestionWhat is the inflation rate if the nominal interest is $3\%$ and the real interest is $1\%$ ? A. $1\%$ B. $2\%$ C. $3\%$ D. $4\%$

Studdy Solution

STEP 1

Assumptions1. The nominal interest rate is3% . The real interest rate is1%
3. The rate of inflation is calculated using the formula Nominal interest rate = Real interest rate + Inflation rate

STEP 2

First, we need to rearrange the formula to solve for the inflation rate. $Inflation\, rate = Nominal\, interest\, rate - Real\, interest\, rate$

STEP 3

Now, plug in the given values for the nominal interest rate and real interest rate to calculate the inflation rate.
$Inflation\, rate =3\% -1\%$

STEP 4

Calculate the inflation rate.
$Inflation\, rate =3\% -1\% =2\%$ The rate of inflation is2%.

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