Question

What is inflation and real interest rates as seen by authors: Berk, DeMarzo and Hartford

Answer 1

Inflation is a rate that measures the decrease in the purchasing power of a country's currency. inflatoon is a rate at which the average price level of goods and services increases in an economy over a period of time. A higher rate of inflation decreases the purchasing power and increase the price of goods and services and decreases the standard of living.

Real rate of interest is the rate of return which if offered to investors after adjusting to inflation rate. nominal rate of return is a rate which is offered on investment but real rate of interest or return is return after adjusting the inflation rate.

real rate of return = Nominal rate of return-inflation rate