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In​ 1975, interest rates were 7.85% and the rate of inflation was 12.3% in the United...

In​ 1975, interest rates were

7.85%

and the rate of inflation was

12.3%

in the United States. What was the real interest rate in​ 1975? How would the purchasing power of your savings have changed over the​ year? ​(Note: Be careful not to round any intermediate steps less than six decimal​ places.)

Solutions

Expert Solution

What was the real interest rate in​ 1975?

=((1+7.85%)/(1+12.3%))-1

=-3.96% or -4.0%

the purchasing power of savings declined by 3.96% or 4%

jeff jeffy answered 2 years ago
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