Explain Why Realized Real Rates of Interest Are Sometimes Negative

question 25

Essay

Explain why realized real rates of interest are sometimes negative, but expected real rates are always positive. Give an example.

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Definitions:

Interest Rate

The percentage of a loan amount charged by the lender to the borrower for the use of money, expressed as an annual percentage.

Scheduled Payment

Regularly planned payments towards a debt or obligation, often part of a loan or mortgage repayment plan.

Equivalent Payment

A payment or series of payments adjusted to represent a common value under certain specified conditions, often used in comparing different financial plans.

Interest Rate

The percentage of a sum of money charged for its use, often expressed on an annual basis.