# Answer to Question #76813 in Macroeconomics for joseph sagoe

Question #76813

the consumer price index was 225 in 2006 and 234 in 2007. The nominal interest rate during this period was 6.5%. what is the real interest rate during this period?

Expert's answer

CPI data: Year 2006 = 225

Year 2007= 234

Nominal Interest rate = 6.5%

Hence, inflation rate in this period =[CPI (2007) – CPI (2006)]*100 / CPI (2006)

= [234-225]*100 / 225

= 4%

Using Fisher Equation for low inflation level,

Real interest rate during the period = Nominal interest rate – inflation rate

= 6.5-4.0

=2.5%

Year 2007= 234

Nominal Interest rate = 6.5%

Hence, inflation rate in this period =[CPI (2007) – CPI (2006)]*100 / CPI (2006)

= [234-225]*100 / 225

= 4%

Using Fisher Equation for low inflation level,

Real interest rate during the period = Nominal interest rate – inflation rate

= 6.5-4.0

=2.5%

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