Question

If the inflation rate is 10 percent and the real interest rate is 12 percent, the nominal interest rate is:

Answer 1

Answer:

nominal interest rate= 0.2= 22%

Explanation:

Giving the following information:

Inflation rate= 10%

Real interest rate= 12%

The real interest rate is the result of deducting from the nominal interest rate the inflation rate. Inflation has the opposite effect than interest.

Real interest rate= nominal interest rate - inflation rate

nominal interest rate= real interest rate + inflation rate

nominal interest rate= 0.12 + 0.10

nominal interest rate= 0.2= 22%