If the Inflation rate is 6% per year and the market interest rate is known to be 15% per year. What is the implied real interest rate in this inflationary economy?
Answers
Explanation:
Many different cuisines are represented on the street corner, including a cart sponsored by Tipu Burger sells a burger of either Chicken or Beef for Rs.100. The food is made in the morning at nearby restaurant in DHA, when the kitchen is otherwise unoccupied.
His crew of three, each of whom earnsMany different cuisines are represented on the street corner, including a cart sponsored by Tipu Burger sells a burger of either Chicken or Beef for Rs.100. The food is made in the morning at nearby restaurant in DHA, when the kitchen is otherwise unoccupied.
the Inflation rate is 6% per year and the market interest rate is known to be 15% per year. What is the implied real interest rate in this inflationary economy?
the Inflation rate is 6% per year and the market interest rate is known to be 15% per year. What is the implied real interest rate in this inflationary economy?
His crew of three, each of whom earns
Answer:
The implied real interest rate in this inflationary economy is 9%.
Explanation:
The implied real interest rate in an inflationary economy can be calculated by subtracting the inflation rate from the nominal interest rate.
In this case, the inflation rate is 6% per year and the market interest rate is 15% per year.
To calculate the implied real interest rate, we subtract the inflation rate from the market interest rate as follows:
Implied real interest rate = Market interest rate - Inflation rate
Implied real interest rate = 15% - 6%
Implied real interest rate = 9%
Therefore, the implied real interest rate in this inflationary economy is 9%. This means that the market interest rate of 15% is only providing a real return of 9%, after adjusting for the effects of inflation.
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