Unit Two: Chapter 19- Interest Rates

Interest Rates

Notes from (2/2/16)

Real Interest Rate- The percent increase in purchasing power the borrower must pay the lender for a loan

- Adjusted for inflation

-Unanticipated Inflation

Nominal Interest Rate - Inflation

(Always less than 10)

Nominal Interest Rate- The percent in money the borrower must pay the lender for a loan 

- Not adjusted for inflation

-Anticipated Inflation (Fisher Effect)

Expected Interest Rate + Inflation Premium

Hurt and Helped by Inflation?

Hurt- Savers, Lenders/ Creditors, Those on Fixed Incomes

Helped- Borrowers

COLA- Cost of Living Adjustments- Gives automatic wage increases when inflation occurs


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