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A bank lends money for a year at an interest rate of 7%, and the inflation...

Question

A bank lends money for a year at an interest rate of 7%, and the inflation...

A bank lends money for a year at an interest rate of 7%, and the inflation rate for that year turns out to be 5%. What is the bank's real rate of return for that year?

Answers

Answer

the real rate of interest =nominal interest rate - inflation

=7-5

=2%

the real interest rate is 2%


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