rest Rates, and the 12/18/17 jorge cart 0 This ibs a Numeric Entry question/ t l

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rest Rates, and the 12/18/17 jorge cart 0 This ibs a Numeric Entry question/ t ls worth 1 point/You have 4 of S attempts remaining/There is no attempt penalty Question 1 point) See page 285 1st attempt eedback 0 See Hint You have just taken ajob at a bank in the loans department, Your bank is worried about the current economic dlimate and its potential to limit the r proper nominal rate of interest to ensure a 7% real rate of interest. You say that you have to know what inflation will be. You are told that the car rent inflation rate is 1%. rcal rate of interest the bank will earn on new loans. Turning to you, the head of the department asks you to determine the You suggest a nominal interest rate of s 7 8 9

Explanation / Answer

According to Fischer effect,

Nominal rate of interest= real rate of interest + inflation rate

= 7+1= 8%

Therefore nominal interest rate should be 8%.

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