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What should the nominal interest rate be

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Reference no: EM132118700

Question: Real and nominal interest rates: Suppose the real return on investing in a machine is 5% and the inflation rate is 4%.

(a) According to the Fisher equation, what should the nominal interest rate be?

(b) Suppose bank A charges a nominal interest rate on loans equal to 8%. What happens?

(c) Suppose bank B advertises its nominal rate on savings accounts as 12%. What happens?

Reference no: EM132118700

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