Question

If the nominal interest rate is 7 percent and the real interest rate is -2.5 percent, then the inflation rate is Group of answer choices -9.5 percent. -4.5 percent. 4.5 percent. 9.5 percent.

Answer 1

Answer:

Inflation = 9.5%

Explanation:

Inflation can be defined as the persistent general rise in the price of goods and services in an economy at a specific period of time.

Given the following data;

Nominal interest rate = 7 percent.

Real interest rate = -2.5 percent

Real interest rate = Nominal interest rate - Inflation

Inflation = Nominal interest - Real interest rate

Inflation = 7 - (-2.5)

Inflation = 9.5%