Which interest rate would expect to be higher?

A. Real

B. Nominal

C. They are the same

Solutions

Expert Solution

B. Nominal

Nominal interest rates will generally be higher. This is because nominal interest rates include inflation rates. Once we take out inflation, we get real rate. And real rate will be lower than nominal rae if infltaion rate is positive. Here is the formula:

Real rate = [(1 + nominal rate) / (1 + infltation rate)] - 1

jeff jeffy answered 1 year ago

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