madaochenggong

The real interest rate does not adjust itself to inflation -- its is the nominal interest rate that changes upon inflation. The real interest rate is based purely on demand supply factors

skwak88 Wrote:
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> why does it not make sense?
>
> suppose Ghana's nominal int rate is 9.0% and the
> expected inflation rate is 3.5%.
> Real interest rate then is, (1.09) = (1+real int
> r)(1.035). Solve for real int r and get 5.3%. In
> other words, nominal interest rate should in
> theory be explained by inflation and real interest
> rate.