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asked 6 months ago
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Real Interest rate is derived when the Inflation rate is subtracted form the Nominal Interest rate. A Real Interest rate caters to three main kinds of risks that is represented to an investment. It includes issues such as time value of money, Risk compensation etc.
Real Interest rates are very useful in real life. A higher real interest rate will lead to higher demand of credit and on the other hand, a lower real interest rate will result in movement of demand to investment and consumption from savings.
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