Question
Use the Fisher equation to fill in the blanks in the following table. Inflation rate Real...
Use the Fisher equation to fill in the blanks in the following table. Inflation rate Real interest rate 3% Nominal Interest rate 7% % 6X 2% 3%
Answers
Fisher equation States that Real interest rate is equal to Nominal interest rate minus inflation.
Real interest rate takes into account the inflation condition also.
So
Inflation = Nominal interest rate - real interest rate
7-3=4%.
Real interest rate = Nominal rate - inflation
6-4=2%
Nominal interest rate= Real interest + inflation
3+2=5%
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