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The current inflation rate is [tex]2 \%[/tex], and the nominal interest rate on a savings account is [tex]1.3 \%[/tex]. What is the real interest rate on the savings account?

Select the correct answer.

A. [tex]-2.0 \%[/tex]
B. [tex]-0.7 \%[/tex]
C. [tex]0.7 \%[/tex]
D. [tex]1.3 \%[/tex]

Sagot :

GinnyAnswer
To determine the real interest rate on a savings account, we need to take into account both the nominal interest rate and the inflation rate. The real interest rate is the nominal interest rate adjusted for inflation. The formula to find the real interest rate is:

[tex]\[ \text{Real Interest Rate} = \text{Nominal Interest Rate} - \text{Inflation Rate} \][/tex]

Given:
- The nominal interest rate is [tex]\( 1.3 \% \)[/tex]
- The inflation rate is [tex]\( 2.0 \% \)[/tex]

We substitute these values into the formula:

[tex]\[ \text{Real Interest Rate} = 1.3 \% - 2.0 \% \][/tex]

Performing the subtraction:

[tex]\[ \text{Real Interest Rate} = -0.7 \% \][/tex]

So, the real interest rate on the savings account is [tex]\( -0.7 \% \)[/tex].

The correct answer is:
[tex]\[ -0.7 \% \][/tex]
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