Question

Interest rate differences between countries depend on Group of answer choices neither differences in expected inflation, nor on expected changes in the real exchange rate. differences in expected inflation, but not on expected changes in the real exchange rate. differences in expected inflation, and on expected changes in the real exchange rate. differences in expected changes in the real exchange rate, but not on expected inflation. differences in expected inflation and nothing else.

Answer 1

Differences in expected inflation, and on expected changes in the real exchange rate.

Step-by-step explanation:

Interest rate is the rate charged by a lender on monies borrowed

For example if 100 is borrowed, and the lender expects the borrower to pay 10 every month. The interest rate = (10/100) = 10%

According to the taylor equation

(1 + Nominal interest rate) = ( 1 + real interest rate) + (1 + inflation rate)

the higher the real interest rate and inflation rate, the higher the nominal interest rate

Real interest rate is interest rate less inflation rate

Nominal interest rate includes inflation rate