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Interest means the amount which a lender gets against the money lent. While interest is rate represents the ratio between interest and the amount lent. There are two types of interest rates
The rate of interest where inflation is not considered is called nominal interest rate while includes the expected changes in price level is called real interest rate , but such interest rate represents the real cost of borrowing
According to Irving Fisher ,the nominal interest rate (i) is equal to real interest rate (ir)and expected rate of inflation
i =ir +expected rate of inflation
