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Relation between nominal interest rate, real interest rate and inflation
If we denote the nominal interest rate by R, the real rate by r and the expected inflation by pe then the real interest rate is defined by:
r= R- pe or R= r+ pe
Suppose you have decided to do some savings. You will deposit $200 this year into an account that earns 2% per year and increase the amount deposited each year by 20% in every year
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