Question

f the nominal interest rate is 7 percent and the real interest rate "is -2.5" percent, then the inflation rate is

Answer 1

9.7%

Step-by-step explanation:

(1 + nominal interest rate) = (1 + real rate) x (1 + inflation rate)

1.07 = 0.975 x (1 + inflation rate)

(1 + inflation rate) = 1.07 / 0.975

(1 + inflation rate) = 1.097

Inflation rate = 1.097 - 1 = 0.097 = 9.7%