Question

If the real interest rate on credit card loan bearing 24% interest per year. If the rate of inflation is 10% then what is real interest rate?

Answer 1

Explanation:

To find the real interest rate, we take the nominal interest rate and subtract the inflation rate. For example, if a loan has a 12 percent interest rate and the inflation rate is 8 percent, then the real return on that loan is 4 percent. In calculating the real interest rate, we used the actual inflation rate.

Answer 2

Answer:

According to the quantity theory of money, a growing money supply increases inflation. Thus, a low interest rate tends to result in more inflation. High interest rates tend to lower inflation.When interest rates are low, individuals and businesses tend to demand more loans.