Question

The real interest rate tells you Question 31 options: how fast the number of dollars in your bank account rises over time. how fast the purchasing power of your bank account rises over time. the number of dollars in your bank account today. the purchasing power of your bank account today.

Answer 1

The real interest rate tells you how fast the purchasing power of your bank account rises over time.

What is meant by the real interest rate?

• When a borrower pays back a loan with interest, the lender obtains a gain in purchasing power that is expressed as a percentage.
• In the previous illustration, the lender made $8 on the $100 loan, or 8%.

What is real and nominal interest rate?

• The real rate of a bond or loan is determined by adjusting a real interest rate to account for the impacts of inflation.
• The interest rate before accounting for inflation is referred to as a nominal interest rate.

Why real interest rate is important?

• Real interest rates are the main concern of economists.
• Investors may be forced to take on greater risk or withdraw entirely depending on the real rate.
• Without ever taking a dollar, it can drain your savings.
• Every central bank in the world has it on their radar.

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