Question

Suppose that the nominal interest rate in Japan is only 2.02.0 ​percent, while the comparable rate in the United States is 4.04.0 percent.​ Japan's rate of inflation is 0.50.5 percent while the U.S. inflation rate is 3.03.0 percent. Which economy has the higher real interest​ rate?

Answer 1

Japan

Step-by-step explanation:

Data provided in the question

Japan Nominal interest rate = 2.0%

U. S Nominal interest rate = 4.0%

Japan inflation rate = 0.50%

U.S inflation rate = 3.0%

Now the formula to compute the real interest rate is

Real interest rate = Nominal interest rate - inflation rate

For Japan, it is

= 2% - 0.50%

= 1.50%

For U.S, it is

= 4.0% - 3.0%

= 1.0%

So as we can see that highest rate interest rate is 1.50% i.e of Japan