A real interest rate and a nominal interest rate are quite
similar. The only real difference between the two interest rates
are that a nominal interest rate include the cost of inflation
where as the real interest rate does not.
A real interest rate and a nominal interest rate are quite
similar. The only real difference between the two interest rates
are that a nominal interest rate include the cost of inflation
where as the real interest rate does not.
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Nominal InterestA nominal interest rate is the interest rate that does not compensate for inflation.
This is used in relation to "effective interest rate" or "real interest rate."
" Real Interest Rate = Nominal Interest Rate - Inflation Rate " Improvement suggested by Palash Bagchi.
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In the long run the real interest rate is determined by?
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the real interest rate equals nominal interest rate minus
inflation rate. In the situation the inflation rate increase and
the nominal interest rate remains unchanged, therefore the real
interest rate must decrease.