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QuestionFind the real interest rate if the nominal rate is 1%1\% and inflation is 2%2\%. Options: −2%-2\%, −1%-1\%, 0%0\%, 1%1\%, 2%2\%.

Studdy Solution

STEP 1

Assumptions1. The nominal interest rate is1% . The rate of inflation is%

STEP 2

The real interest rate can be calculated using the formulaReal interest rate=Nominal interest rate−Inflation rateReal\, interest\, rate = Nominal\, interest\, rate - Inflation\, rate

STEP 3

Now, plug in the given values for the nominal interest rate and the inflation rate to calculate the real interest rate.
Real interest rate=1%−2%Real\, interest\, rate =1\% -2\%

STEP 4

Calculate the real interest rate.
Real interest rate=1%−2%=−1%Real\, interest\, rate =1\% -2\% = -1\%The real interest rate is -1%.

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