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What effects does have on the economy

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Question a. Tony is applying for a new home loan. He wishes to borrow $250,000 and make his repayments monthly. The interest rate the bank has quoted him is 4% per annum and the inflation rate is 3% pa.

Question i. Is this the real rate of interest or the nominal rate of interest?

Question ii. Explain the difference between the real rate of interest and the nominal rate of interest.

Question iii. Calculate the real rate of interest and the nominal rate of interest for Tony.

Question iv. Is it possible for the real rate of interest to equal the nominal rate of interest? Explain.

Question b. The Reserve Bank of Australia has announced a 0.25% decrease in the cash rate. What effects does this have on the economy and the financial markets? Provide examples of who might benefit from this decrease and those who may not.

 

Reference no: EM132498815

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