Question

In 1975, interest rates were _______ and the rate of inflation was _______ in the United States. What was the real interest rate in 1975? How would the purchasing power of your savings have changed over the year?

Answer 1

In 1975, interest rates were high and the rate of inflation was also high in the United States. The real interest rate would have been lower due to the high inflation rate. The purchasing power of savings would have decreased over the year.

Step-by-step explanation:

In 1975, interest rates were high and the rate of inflation was also high in the United States. The exact interest rates and inflation rates for 1975 are not provided in the given information, but it mentions that many industrialized countries, including the United States, had relatively high inflation rates in the 1970s. For example, Japan's inflation rate was over 8% and the United Kingdom's inflation rate was almost 25% in 1975.

To calculate the real interest rate, you need to subtract the rate of inflation from the interest rate. Real interest rate = Nominal interest rate - Inflation rate. As the inflation rate in 1975 was high, subtracting it from the high interest rate would result in a lower real interest rate. The purchasing power of savings would have decreased over the year due to the high rate of inflation.