Asked by Allison Wagoner on Jul 30, 2024
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The nominal interest rate is eight percent and the consumer price index rises from 140 to 147. What is the real interest rate?
Nominal Interest Rate
The headline rate of interest paid on a loan or received on an investment, not adjusted for inflation.
Consumer Price Index
An index that measures the change in price level of a market basket of consumer goods and services purchased by households.
Real Interest Rate
The interest rate that has been modified to account for inflation, showing the real cost of borrowing or the genuine investment return.
- Measure the effect of inflation on real wages and interest rates.
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CS
Learning Objectives
- Measure the effect of inflation on real wages and interest rates.