multiple choice question\nif the inflation rate is 3%, and the real interest rate is 5%, then the nominal…
multiple choice question\nif the inflation rate is 3%, and the real interest rate is 5%, then the nominal interest rate is:\no 4%\no 8%\no 10%\no 2%
Answer
Explanation:
Step1: Recall the Fisher - equation
The Fisher - equation is $i = r+\pi$, where $i$ is the nominal interest rate, $r$ is the real interest rate, and $\pi$ is the inflation rate.
Step2: Substitute the given values
Given $r = 5%$ and $\pi=3%$. Substituting into the formula: $i=5% + 3%$.
Step3: Calculate the nominal interest rate
$i = 8%$.
Answer:
8% is the second option, so the answer is: O 8%