Final answer:
The question is about understanding that when a compounding period is given without specifying the type of interest rate, it is usually considered a nominal interest rate. Compound interest is interest on the initial principal and accumulated interest, impacting both financial savings and GDP growth rates similarly.
Step-by-step explanation:
When the compounding period is given without the interest rate being identified as either nominal or effective, it is typically assumed to be a nominal interest rate. The nominal rate is the stated rate per period before the effect of compounding interest is considered.
Compound interest is the calculation of interest on both the initial principal and the accumulated interest from previous periods. This differs from simple interest, which is calculated only on the principal amount. To calculate compound interest, one would use the formula:
Future Value = Principal × (1 + interest rate)number of periods
The compound growth rate in economics is similar to the compound interest rate in finance. Both involve an original starting amount, a percentage increase over time, and an amount of time over which this effect happens. For instance, both GDP growth rates and financial savings experience compounding effects when this calculation is applied.