Distinguish between the nominal and real rates of interest using an example
What will be an ideal response?
The nominal rate of interest is the stated rate of interest, while the real rate of interest is expressed in constant dollars or dollars adjusted for inflation. The real interest rate is the nominal interest rate minus the rate of inflation. In simple terms, if the nominal rate of interest charge on a loan is 7%, but the inflation rate is 3%, then the real rate of interest received by the institution making the loan is 4%.
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Hughes and Cain (2011) ask: Who suffered from the tariff in the 19th century? What was their answer?
(a) the government (b) producers of import-competing goods (c) consumers (d) workers in import-competing industries
According to the classical system, a decrease in the income tax rate reduces the after-tax real wage
a. and shifts the labor supply schedule to the right. b. and shifts the labor supply schedule to the left. c. without shifting the labor supply schedule. d. None of the above
Stagflation at the end of the 1970s was marked by increasing inflation and unemployment
Indicate whether the statement is true or false
Suppose the Fed sells $10 million in government securities to a commercial bank. If the required reserve ratio is 0.2, what is the maximum amount by which checkable deposits in the banking system can change?
a. +$10,000,000 b. ?$10,000,000 c. +$50,000,000 d. ?$50,000,000 e. +$20,000,000