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In: Economics

Investors receive a 8% annual interest rate on their bank deposits. (These are essentially as risk-free...

Investors receive a 8% annual interest rate on their bank deposits. (These are essentially as risk-free as Treasuries, because the Federal Government guarantees banks deposits against defaults {within certain limits}). If the annual inflation rate is zero, what is the real interest rate will the investors will earn on their deposits?

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Expert Solution

The investor receive real interest rate is 8% beacuse there is zero inflation

For example assume your bond pays 5% interest per year. If the inflation rate is 3% per year than your real intrest on saving is 2%.

Rahul Sunny answered 2 years ago
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