if the nominal interest rate is 4.00% and the rate of inflation is 2.25%, what is the real interest…

Explanation:

Step1: Recall the Fisher - equation approximation

The approximate Fisher equation is $r = i-\pi$, where $r$ is the real interest rate, $i$ is the nominal interest rate, and $\pi$ is the inflation rate.

Step2: Substitute the given values

Given $i = 4.00%=0.04$ and $\pi = 2.25% = 0.0225$. Then $r=0.04 - 0.0225$.

Step3: Calculate the real interest rate

$r=0.0175$ or $1.75%$.

Answer:

1. $1.75%$