Homework Answers
First find the rate of inflation
Rate of inflation = rate of growth of money supply + rate of growth of velocity of money - rate of growth of real GDP
= 5% + 0% - 3%
= 2%
This shows that the rate of inflation is the 2%
According to the fisher's equation
Real interest rate = nominal interest rate - rate of inflation
= 5% - 2%
= 3%
Hence, real interest rate is 3%.
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