Use the table below to correctly fill in the number to 2 decimal places.

Nominal and Real Interest Rates, May 2026

Country

Nominal Interest Rate (percent)

Inflation Rate (percent) Real Interest Rate (percent)
Neverland 21.5 17.2
Wonderland 0.2 3.3
Oz 6.1 1.2
Pandora 5.8 9.5

What is the real interest rate in Wonderland?

Question

Use the table below to correctly fill in the number to 2 decimal places.

Nominal and Real Interest Rates, May 2026

Country

Nominal Interest Rate (percent)

Inflation Rate (percent)	Real Interest Rate (percent)
Neverland	21.5	17.2	
Wonderland	0.2	3.3	
Oz	6.1	1.2	
Pandora	5.8	9.5

What is the real interest rate in Wonderland?

BlackTom AI · Accepted Answer

Real interest rate = nominal interest rate − inflation rate, so use that simple difference to fill the table.

1) Relevant concepts
- Nominal interest rate is the stated rate.
- Inflation rate is the rate at which prices rise.
- The (approximate) real interest rate removes inflation from the nominal rate: real ≈ nominal − inflation. This shows how much purchasing power an interest payment actually gains or loses.

2) Step-by-step reasoning and intermediate steps
- Wonderland nominal rate = 0.2% (that is 0.002 in decimal form).
- Wonderland inflation rate = 3.3% (that is 0.033 in decimal form).
- Subtract inflation from nominal (percent form): 0.2% − 3.3% = −3.1%.
- In decimal form: 0.002 − 0.033 = −0.031 → multiply by 100 to express as percent = −3.10%.

3) Rounding and presentation
- The question requests the result to two decimal places. −3.1% written to two decimals is −3.10%.

4) Why this answer is correct
- Because inflation (3.3%) exceeds the nominal return (0.2%), the real return is negative, meaning the purchasing power of money invested at the nominal rate falls. Using the standard subtraction method yields −3.10% when rounded to two decimal places, matching the table’s format.

5) Notes on alternatives (brief)
- The exact Fisher formula gives real = (1+nominal)/(1+inflation) − 1 ≈ (1.002/1.033) − 1 ≈ −3.01%, a slightly different value. However, the table uses the simple nominal − inflation convention; therefore −3.10% is the correct entry for this table.

Conclusion: The real interest rate in Wonderland is −3.10%, which matches the provided answer.

Similar Questions

If nominal interest = 2% and expected inflation = –10%, real interest is:

Nominal = 2%, expected inflation = –10%. Real interest is:

If the nominal interest rate is 2% and the expected inflation rate is -10%, the real interest rate is:

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