Question

In: Economics

The interest rate is 10%. The inflation rate is 5% and the expected inflation rate is...

The interest rate is 10%. The inflation rate is 5% and the expected inflation rate is 10%. The actual real interest rate is:

less than or equal to -5%

greater than -5% but less than or equal to 0%

greater than 0% but less than or equal to 5%

greater than 5% but less than or equal to 10%

greater than 10%

Solutions

Expert Solution

Correct Option: greater than 0% but less than or equal to 5%.

It is because real interest rate adjusted for inflation will be = 10% - 5% = 5%

while real interest rate adjusted for expected inflation will be = 10% - 10% = 0%

Therefore, actual real interest will lie between 0% to 5%.

Rahul Sunny answered 2 years ago
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