The nominal interest rate in the UK is 5.5% and the expected rate of inflation is 3%. If the expected rate of inflation in the USA is 5%, what is the nominal interest rate in the USA (to one decimal place)?
________%
The correct answer is: 7.5%
According to the Fisher effect, the difference in inflation rates will be reflected in differences in interest rates.
(1 + i$)
=
1.055 x = 1.075
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