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real & nominal interest rates

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Looking at the concepts of real and nominal interest rates.

How does inflation impact the interest you pay for loans such as a mortgage, car loan, or credit card loan?

How do the concepts of real and nominal affect you when you get a raise?

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Solution Summary

Concepts of real and nominal interest rates are examined.

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Interest rates are determined by a variety of factors, such as the economy, the inflation rate and the Federal Reserve policy. Over time, inflation plays the largest impact on interest rates. A low rate of inflation will generally lead to low interest rates, while speculation of rising inflation typically will cause interest rates to increase. Thus, with rising inflation, one is bound to pay more interest on loans such as car loan or credit card loan.

source: http://guaranteedrate.com/GRATE/

Inflation affects everything over time (interest rates, investment returns and ...

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Sandeep Bardia, MBA
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  • BCom, SGTB Khalsa College, University of Delhi
  • MBA, Rochester Institute of Technology
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