|Posted on April 16, 2014 at 10:45 AM|
To calculate the real or nominal interest rate, we can use the Fisher equation. The real interest rate accounts for changes in the price level and is very important for businesses interested in investment spending. When real interest rates are low, businesses will increase spending. When real interest rates are high, businesses are less likely to invest.
Real Interest Rate = Nominal Interest Rate - Inflation Rate
Nominal Interest Rate = Real Interest Rate + Inflation Rate
AP Macroeconomics Unit 2 Measuring Economic Performance