If inflation is 8 percent and the real interest rate is 3 percent, then the nominal interest rate must be ?
Correct answer: C. 11 percent
- A. 3/8 percent
- B. 5 percent
- C. 11 percent
- D. 24 percent
Explanation
Using the Fisher relationship, nominal interest is approximately the real interest rate plus expected inflation: 3% + 8% = 11%. The exact compound result is slightly higher, but 11% is the intended answer.
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The economy is studied as a whole through national income, gross domestic product, inflation, unemployment, economic growth and business cycles. Coverage includes aggregate demand and supply, consumption and investment, money and banking, fiscal and monetary policy, exchange rates and balance of payments, which distinguishes macroeconomics from the study of individual markets.
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