Question

If the nominal interest rate is 5 percent and the real interest rate is 7 percent, then the inflation rate is _______

Answer 1

Answer:

- 2%

Explanation:

Nominal interest rate is the sum of inflation rate and real interest rate.

Nominal interest rate = Real interest rate + Inflation rate

5 percent  = 7 percent + Inflation rate

Therefore,

Inflation rate = - 2%

Hence, if the nominal interest rate is 5 percent and the real interest rate is 7 percent, then the inflation rate is - 2%.

Answer 2

The inflation rate is -2% If the nominal interest rate is 5 percent and the real interest rate is 7 percent.

What is the inflation rate?

The inflation rate is the rate at which the value of a currency is expiring and, accordingly, the general stage of prices for goods and services is going up.

The most ordinarily used inflation scales are the Consumer Price Index and the Wholesale Price Index.

The formula for the inflation rate is:

$\text{Inflation Rate}= \text{Nominal Interest Rate - Real Interest Rate}$

Computation of the inflation rate:

The nominal interest rate is the sum of the inflation rate and real interest rate.

$\text{Inflation Rate}= \text{Nominal Interest Rate - Real Interest Rate}\\\\\text{Inflation Rate}= 5\%-7\%\\\\\text{Inflation Rate}=-2\%$

Hence, The inflation rate is -2%.

Learn more about the inflation rate, refer to:

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