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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
Q. Nominal interest rate and expected inflation? When we have inflation, we can't, of course, presume that expected inflation is zero. So real interest rate will no longer be e
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