select the correct answer.\nwhat is the real interest rate for an account with a nominal interest rate of 1%…

select the correct answer.\nwhat is the real interest rate for an account with a nominal interest rate of 1% when the rate of inflation is 2%?\n-2%\n-1%\n0%\n1%\n2%

select the correct answer.\nwhat is the real interest rate for an account with a nominal interest rate of 1% when the rate of inflation is 2%?\n-2%\n-1%\n0%\n1%\n2%

Answer

Explanation:

Step1: Identify the Fisher Equation

The relationship between nominal interest rate, real interest rate, and inflation is given by the Fisher Equation: $$r \approx i - \pi$$ where $r$ is the real interest rate, $i$ is the nominal interest rate, and $\pi$ is the inflation rate.

Step2: Substitute the given values

Given $i = 1%$ and $\pi = 2%$, substitute these into the formula: $$r = 1% - 2%$$

Step3: Calculate the result

Perform the subtraction to find the real interest rate: $$r = -1%$$

Answer:

-1%