Nominal v. Real Interest Rates- Macro Topic 4.2

Mr. Clifford from ACDC Econ discusses interest rates, explaining their impact on borrowing and lending. He highlights the role of inflation in determining real interest rates and why banks must consider expected inflation. The video includes exercises to calculate nominal, real, and inflation rates, emphasizing the importance of understanding these concepts in financial contexts.

What determines whether a 50% interest rate is beneficial or detrimental?

• The type of currency used

• The duration of the loan

• Whether you are borrowing or lending

• The amount of money involved

Why do banks need to charge interest rates?

• To make a profit

• To attract more customers

• To cover operational costs

• To protect against inflation

What is the real interest rate if the nominal rate is 10% and inflation is 5%?

• 15%

• 5%

• 0%

• 10%

If you lend money at a nominal rate of 10% and the real return is 5%, what is the inflation rate?

• 0%

• 5%

• 10%

• 15%

If inflation is 7% and your real interest rate is -2%, what is the nominal interest rate?

• 5%

• 9%

• 7%

• 2%