Asked by
Abigail Cortez
on Nov 26, 2024
Verified
When the inflation rate is 4 percent and the nominal interest rate on long-term government bonds is 8 percent, the real interest rate is 12 percent.
Inflation Rate
The speed at which the overall price level of goods and services increases, leading to a decrease in purchasing power.
Nominal Interest Rate
The interest rate expressed in terms of annual amounts currently charged for interest and not adjusted for inflation.
Real Interest Rate
The interest rate expressed in dollars of constant value (adjusted for inflation) and equal to the nominal interest rate minus the expected rate of inflation.
- Gain an understanding of the core principles surrounding loan interest, including the variables that impact interest rates and the association between the magnitude of a loan and its term.
Verified Answer
SD
Learning Objectives
- Gain an understanding of the core principles surrounding loan interest, including the variables that impact interest rates and the association between the magnitude of a loan and its term.