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Unformatted text preview: • ○ The nominal interest rate minus the inflation rate • Real Interest Rate the interest rate corrected for inflation ○ This is not beneficial to savers. ○ Borrowers are helped by negative interest rates. • A negative real interest rate means that money that is saved and is earning the nominal interest rate is actually losing purchasing power. • Indexation is the automatic adjustment of a sum of money to account for the effects of inflation. (19xx price) x (current CP I/ 19xx CPI) To find the value of past prices measured in current prices, take the past price and multiply it by (current CPI/past CPI) Chp. 6 Measuring the Cost of Living Exam 2 Material Page 1...
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This note was uploaded on 04/07/2008 for the course ECON 252 taught by Professor Robertholand during the Fall '08 term at Purdue.
 Fall '08
 RobertHoland
 Consumer Price Index (CPI), Inflation

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