Economics · Inflation and Interest Rates
If the nominal interest rate on a fixed deposit is 7% and the annual inflation rate is 4%, what is the approximate real interest rate, and what type of inflation occurs when there is a sudden increase in the cost of raw materials like crude oil?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1The real interest rate is 7%, and the type is structural inflation.
- 2The real interest rate is 1.75%, and the type is hyperinflation.
- 3The real interest rate is 3%, and the type is cost-push inflation.✓
- 4The real interest rate is 11%, and the type is demand-pull inflation.
Correct answer
The real interest rate is 3%, and the type is cost-push inflation.
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