Real Interest Rate + Rule of 70

In January 2009, you can put your savings in a Bank of America account and be paid 2 percent per year. During 2009, suppose the inflation rate is 3.4 percent. In 2009 you earned a real interest rate of

• A) 0.59 percent.

• B) 6.8 percent.

• C) 1.4 percent.

• D) -1.4 percent.

The real interest rate is 4 percent a year. When the inflation rate is zero, the nominal interest rate is approximately ________ percent a year; and when the inflation rate is 2 percent a year, the nominal interest rate is approximately ________ percent a year.

• A) 0; 2

• B) 4; 6

• C) 6; 8

• D) 6; 4

In 2007, the interest rate banks in France charge each other for loans was 4.86 percent. The inflation rate in France in 2007 was 2.8 percent. The real interest rate in France is

• A) 7.62 percent

• B) 2.06 percent.

• C) 0.58 percent.

• D) 13.6 percent.

The nominal interest rate approximately equals which of the following?

• A) the real interest rate minus the inflation rate

• B) the real interest rate plus the inflation rate

• C) the real interest rate minus the growth rate of real GDP

• D) the real interest rate plus the growth rate of real GDP

If the nominal interest rate is 8 percent and the current inflation rate is 3 percent, approximately what is the real interest rate?

• A) 11 percent

• B) 8 percent

• C) 5 percent

• D) 3 percent

The average Stock Market return since 1926 has been 11%. According to the Rule of 70, how often will an individual’s investment double in that time?

• 6.36 years

• 7.74 years

• 8.32 years

• 10.9 years

If the nominal interest rate is 11 percent and the inflation rate is 9 percent, then the real interest rate is approximately

• A) 2 percent.

• B) 20 percent.

• C) 4 percent.

• D) 18 percent.

The ________ interest rate approximately equals the ________ interest rate minus ________.

• A) nominal; real; depreciation

• B) nominal; real; the inflation rate

• C) real; nominal; depreciation

• D) real; nominal; the inflation rate

If the nominal interest rate is 8 percent and the inflation rate is 2 percent, the real interest rate is approximately

• A) 4 percent.

• B) 6 percent.

• C) 0.25 percent.

• D) 10 percent.

If people expect an inflation rate of 3.3 percent, and the real interest rate is 3 percent, the nominal interest rate equals (approximately)

• A) 0.3 percent.

• B) 8.6 percent.

• C) 6.3 percent.

• D) 9.9 percent.