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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
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The city of Cabernet is very famous for its production of wine. The inhabitants of the city have an aggregate demand for wine that can be described as follows: D(p) = Q d =150-
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production function
SUppose nominal GDP increases from 5.8 trillion to 6 trillion. The GDP deflator rose over that same year by 3.9 percent. By what percent does the real output increase?
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