The following table shows the average nominal interest rates on six-month Treasu

Question

The following table shows the average nominal interest rates on six-month Treasury bills between 1963 and 1967, which determined the nominal interest rate that the U.S. government paid when it issued debt in those years. The table also shows the inflation rate for the years 1963 to 1967. (All rates are rounded to the nearest tenth of a percent.) On the following graph, use the orange points (square symbol) to plot the nominal Interest rates for the years 1963 to 1967. Next, use the green points (triangle symbol) to plot the real interest rates for those years.

Explanation / Answer

Kindkly plot the points according to the table below. The calculation of the real interest rate has been done in this manner Real interest rate = Nominal Interest Rate - Inflation Rate.

It was highest in the year 1965 = 2.5

Year Nominal Rate Inflation Rate Real Interest Rate 1963 3.3 1.3 2 1964 3.7 1.3 2.4 1965 4.1 1.6 2.5 1966 5.1 2.9 2.2 1967 4.6 3.1 1.5

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