select the correct answer. what is the real interest rate for an account with a nominal interest rate of 1%…

select the correct answer. what is the real interest rate for an account with a nominal interest rate of 1% when the rate of inflation is 2%? -2% -1% 0% 1% 2%

select the correct answer. what is the real interest rate for an account with a nominal interest rate of 1% when the rate of inflation is 2%? -2% -1% 0% 1% 2%

Answer

Explanation:

Step1: Recall the Fisher - equation

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

Answer:

-1%