Real vs Nominal Interest Rates
Demand Management (Monetary Policy)
AO2
Syllabus requirement
Covers the difference and how to calculate real interest rates.
Assessment objectives
AO2 Application and Analysis
Summary
This topic explains the difference between nominal and real interest rates and how changes in the money supply and interest rates influence aggregate demand through expansionary and contractionary monetary policy. It covers the demand for and supply of money, how central banks affect interest rates (including quantitative easing), and the real-world consequences such as impacts on consumption, investment, exchange rates and inflation.


