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Principles of Macroeconomics (Mind...

8th Edition
N. Gregory Mankiw
Publisher: Cengage Learning
ISBN: 9781305971509

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BuyFindarrow_forward

Principles of Macroeconomics (Mind...

8th Edition
N. Gregory Mankiw
Publisher: Cengage Learning
ISBN: 9781305971509
Chapter 11, Problem 6CQQ
Textbook Problem
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You deposit $2,000 in a savings account, and a year after you have $2,100. Meanwhile, the CPI rises from 200 to 204. In this case, the nominal interest rate is _____ percent, and the real interest rate is _____ percent.

a. 1, 5

b. 3, 5

c. 5, 1

d. 5, 3

To determine
Calculation of nominal and real interest rate.

Explanation of Solution

Option (d)

The nominal interest rate is calculated as follows.

Nominal interest rate = (AmountPresentAmountPreviousAmountPrevious)×100=(210020002000)×100=5%

Thus, the nominal interest rate is 5%.

The inflation rate is calculated as follows:

Inflation rate = (CPIPresentCPIPreviousCPIPrevious

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