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Unformatted text preview: Correcting economic variable for the effects of inflation Price indexes are used to correct for the effects of inflation when comparing dollar values from different times. Do the following to convert dollar values from year T into today's dollars. = [ Amount in todays dollars amount in year T dollars Price level todayPrice ] level year T Real and Nominal Interest Rates Interest represents a payment in the future for a transfer of money in the past The Nominal Interest Rate is the interest rate usually reported and not corrected for interest o It is the interest rate that a bank pays. The Real Interest Rate is the interest rate that is corrected for the effects of inflation =-Real Interest Rate Nominal Interest Rate Inflation Rate Lecture Notes Economics T-Th A. Ordonez Chapter 16 809-195-3K1C 4/8/10 PowerPoint...
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- Spring '10