Assume you put money into an asset that pays you 7 percent interest and inflation is 5 percent. Which statement is correct? This means the nominal rate of interest is 7 percent and the real rate is 5 percent. This means the real rate of interest is 2 percent. The textbook states that all interest rates would be assumed to be the real rate; thus, the nominal rate is 12 percent. This means the nominal rate of interest is 35 percent. If the rate of inflation falls, your real rate of interest from this asset would also fall.
Assume you put money into an asset that pays you 7 percent interest and inflation is 5 percent. Which statement is correct? This means the nominal rate of interest is 7 percent and the real rate is 5 percent. This means the real rate of interest is 2 percent. The textbook states that all interest rates would be assumed to be the real rate; thus, the nominal rate is 12 percent. This means the nominal rate of interest is 35 percent. If the rate of inflation falls, your real rate of interest from this asset would also fall.
Chapter14: Money And The Economy
Section: Chapter Questions
Problem 12QP
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Assume you put money into an asset that pays you 7 percent interest and inflation is 5 percent. Which statement is correct?
This means the nominal rate of interest is 7 percent and the real rate is 5 percent.
This means the real rate of interest is 2 percent.
The textbook states that all interest rates would be assumed to be the real rate; thus, the nominal rate is 12 percent.
This means the nominal rate of interest is 35 percent.
If the rate of inflation falls, your real rate of interest from this asset would also fall.
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