Calculate the nominal interest rate in the economy of Pakistan in the year 2021 .

The Case:

Pakistan is an agrarian country.
Major sectors are agricultural, industrial, and services sectors. These sectors
contribute 19%, 20%, and 61% of GDP respectively according to the report of the
finance division of Pakistan.  Suppose in
the year 2021 important facts and figures of the economy of Pakistan are given below;

 

	Year- 2021
Population	100 million
Inflation rate	2%
Real interest rate	5%
Labor force	27 million
Unemployment rate	9%
Growth rate	1%

Calculate the nominal
interest rate in the economy of Pakistan in the year 2021 .

Solution:

To calculate the nominal interest rate in the economy of Pakistan in 2021, we need to use the Fisher equation, which relates the nominal interest rate (i), real interest rate (r), and inflation rate (π) as follows:

i = r + π

Given that the real interest rate (r) is 5% and the inflation rate (π) is 2%, we can substitute these values into the equation:

i = 5% + 2%

i = 7%

Therefore, the nominal interest rate in the economy of Pakistan in 2021 is 7%.