If the nominal interest rate is 7 percent and the inflation rate is 2 percent, the real interest rate is approximately
A) 9 percent.
B) 3.5 percent.
C) - 5 percent.
D) 5 percent.

Question

Quizplus · Accepted Answer

The real interest rate can be calculated by subtracting the inflation rate from the nominal interest rate.

Real interest rate = Nominal interest rate - Inflation rate

= 7% - 2%

= 5%

Therefore, the real interest rate is approximately 5%.

If the Nominal Interest Rate Is 7 Percent and the Inflation