Question

Walter puts money in a savings account at his bank earning 3.5 percent. One year later he takes his money out and notes that while his money was earning interest, prices rose 1.5 percent. Walter earned a nominal interest rate of___________.

Answer 1

Answer:

3.5 percent

Explanation:

Walter nominal interest rate is 3.5%. Nominal rate is the rate before inflation is taken into account. when inflation is taken into account we have a real rate

nominal rate = real rate + inflation rate = 2% + 1.5% = 3.5

or real rate = nominal rate - inflation = 3.5% - 1.5% = 2%