The real interest rate is 1 percent.
The inflation rate is 3 percent.
What are the nominal and real interest rate and inflation rate?
Inflation rate is a rate that estimate the rise on prices of goods and services. The interest rate is a gain rate per unit time associated to invested capital. There are two kinds of interest rates: (i) Nominal interest rate - Inflation is neglected, (ii) Real interest rate - Inflation is not neglected.
Please notice that the difference between nominal interest rate (i) and the real interest rate (i') is the inflation rate (i''). That is:
i'' = i - i'
Now we proceed to find each missing variable:
(i = 4, i'' = 3)
i' = i - i''
i' = 4 - 3
i' = 1
The real interest rate is 1 percent.
(i' = 3, i = 6)
i'' = i - i'
i'' = 6 - 3
i'' = 3
The inflation rate is 3 percent.
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