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In 2015, the nominal rate of interest in a country was 5.5% and the inflation rate then was 2.5%. So real rate of interest in 2015 was________.

  1. A
    8 percent
  2. B
    2.2 percent
  3. C
    3 percent
  4. D
    13.75 percent

Solution & Step-by-step Explanation

The relationship between the nominal interest rate, inflation rate, and real interest rate is given by the Fisher equation formula:
Real Rate of Interest=Nominal Rate of Interest−Inflation Rate
Real Rate=5.5%−2.5%=3%

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In 2015, the nominal rate of interest in a country was 5.5% and the inflation rate then was 2.5%. So real rate of interest in 2015 was________.
A
8 percent
B
2.2 percent
C
3 percent
D
13.75 percent

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MacroeconomicsInterest RatesInflation

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