Question

According to the Fisher equation, when the nominal interest rate equals to 10% and deflation is 5%, the real interest rate equals to ____________.

Answer 1

The Fisher equation states that the real interest rate equals the nominal interest rate minus the rate of inflation. In this case, the nominal interest rate is 10% and the deflation rate is 5%. Therefore, the real interest rate is 15%.

Step-by-step explanation:

The Fisher equation states that the real interest rate equals the nominal interest rate minus the rate of inflation. In this case, the nominal interest rate is 10% and the deflation rate is 5%. Therefore, the real interest rate can be calculated as follows:

Real Interest Rate = Nominal Interest Rate - Inflation Rate

Real Interest Rate = 10% - (-5%)

Real Interest Rate = 10% + 5% = 15%

So, when the nominal interest rate is 10% and deflation is 5%, the real interest rate is 15%.