If nominal interest rates are 10% and expected inflation is 5%, according to Fisher equation,
A) actual inflation exceeds 10%.
B) the real rate of interest is 5%.
C) market rates are expected to increase to 15%.
D) expected interest rates are 5%.

Question

Quizplus · Accepted Answer

The real rate of interest is the nominal rate minus the expected inflation rate. So, in this case, the real rate of interest is 10% - 5% = 5%.

If Nominal Interest Rates Are 10% and Expected Inflation Is