what is the real interest rate when the nominal interest rate on a bank checking account is 1%, and the rate…

what is the real interest rate when the nominal interest rate on a bank checking account is 1%, and the rate of inflation is 2%?\n-1%\n-3%\n½%\n1%\n3%

what is the real interest rate when the nominal interest rate on a bank checking account is 1%, and the rate of inflation is 2%?\n-1%\n-3%\n½%\n1%\n3%

Answer

Explanation:

Step1: Recall the Fisher - equation

The Fisher - equation for the approximate relationship between real interest rate ($r$), nominal interest rate ($i$), and inflation rate ($\pi$) is $r = i-\pi$.

Step2: Substitute the given values

Given $i = 1%=0.01$ and $\pi = 2% = 0.02$. Then $r=0.01 - 0.02=- 0.01$ or $-1%$.

Answer:

A. -1%