If the real interest rate is 7 percent when the nominal interest is 12 rate is...

If the real interest rate is 7 percent when the nominal interest is 12 rate is percent, the inflation rate is

Group of answer choices

5 percent.

1.7 percent.

-5 percent.

7 percent.

19 percent.

Expert Solution

Option A.

Given that the real interest rate is 7 percent and the nominal interest rate is 12 percent.
Then we can find the Inflation rate using the formula,

Nominal interest rate = inflation rate + real Interest rate

12 = 7 + inflation rate

Inflation rate = 12 - 7

= 5 percent.

Rahul Sunny answered 2 years ago

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