If the nominal interest rate is 5 percent and the real interest rate is 2 percent, then the inflation rate is 3 percent.

Question

Quizplus · Accepted Answer

The Fisher equation states that the nominal interest rate is approximately equal to the sum of the real interest rate and the inflation rate. Therefore, if the nominal interest rate is 5 percent and the real interest rate is 2 percent, the inflation rate would indeed be 3 percent (5% - 2% = 3%).

If the Nominal Interest Rate Is 5 Percent and the Real