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xz_007 [3.2K]
3 years ago
13

Suppose that the nominal interest rate in Japan is only 5.0 percent, while the comparable rate in the United States is 7.0 perce

nt. Japan's rate of inflation is 2.0 percent while the U.S inflation rate is 6.0 percent. Which economy has the higher real interest rate?
Business
1 answer:
Eduardwww [97]3 years ago
4 0

Answer: Japan has the higher real interest rate.

Explanation:

Japan:

Nominal interest rate = 5%

Inflation rate = 2%

Real interest rate = Nominal interest rate - Inflation rate

= 5 - 2

= 3%

United States:

Nominal interest rate = 7%

Inflation rate = 6%

Real interest rate = Nominal interest rate - Inflation rate

= 7 - 6

= 1%

∴ Japan has the higher real interest rate.

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