Calculate the Japanese and american nominal interest rates given the following: U.S. inflation rate: 1.8% Japanese inflation rate: 2.2 Real interest rate: 4%

Question

Calculate the Japanese and American nominal interest rates given the following:

U.S. inflation rate: 1.8%

Japanese inflation rate: 2.2

Real interest rate: 4%

 

Please show your work thanks

Answer 1

Nominal interest rate = real interest rate + inflation rate

real inflation rate = 4.4% in both Japan & US

US real interest rate = 1.8%

Japan's real interest rate = 2.2%

US nominal interest rate =1.8 + 4.4 = 6.2%

Japan's nominal interest rate = 2.2 + 4.4 = 6.8%