Question

If the CPI is 170 at the beginning of the year and 181 at the end, and the bank is paying a nominal interest rate of 6 percent, we see that

Answer 1

Answer:

a. the real interest rate is negative.

Explanation:

Options a. the real interest rate is negative.  b. the nominal interest rate is negative. c. the nominal interest rate is zero.  d. the real interest rate is positive.  e. the real interest rate is equal to zero."

If the CPI is 170 at the beginning of the year and $181 at the end.  Then, inflation rate between these two years = (181 - 170) /170 = 0.06471 = 6.47%

The given Nominal interest rate = 6%

Thus, Real interest rate = Nominal interest rate - inflation rate

Real interest rate = (6 - 6.47)%

Real interest rate = -0.47%