Define the nominal interest rate and the real interest rate. Discuss the relationship between the nominal interest rate and the real interest rate
What will be an ideal response?
The nominal interest rate is the percentage return on a loan expressed in dollars. The real interest rate is the percentage return on a loan expressed in purchasing power. In other words, the nominal interest rate is the number of dollars received in interest for a loan and the real interest rate is the goods and services the interest can buy. The real interest rate equals the nominal interest rate minus the inflation rate.
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