Question

You observe that the current interest rate on short-term U.S. Treasury bills is 4.23 percent. You also read in the newspaper that the GDP deflator, which is a common macroeconomic indicator used by market analysts to gauge the inflation rate, currently implies that inflation is 1.2 percent. What is the approximate real rate of interest on short-term Treasury bills? (Enter your answer as a percent rounded to 2 decimal places. Omit the "%" sign in your response.)

Approximate real rate %

Answer 1

Approximate real rate is 3.03%

Step-by-step explanation:

We know that,

Real rate = Nominal rate - Inflation rate

Real rate = 4.23% - 1.2%

Real rate = 3.03%

The U.S treasury bills are considered as a nominal rate i.e 4.23% and the inflation rate is 1.2%. We simply subtract the nominal rate with the inflation rate to find out the real rate so that the accurate rate could come