The nominal interest rate minus the real interest rate approximately equals the
A) rate of increase in the amount of investment.
B) the rate of increase in the income.
C) inflation rate.
D) the rate the bank receives to cover lending costs.

Question

Quizplus · Accepted Answer

The nominal interest rate represents the total rate of interest charged by a lender for borrowing money, while the real interest rate adjusts the nominal rate for inflation. Therefore, subtracting the real interest rate from the nominal interest rate approximately equals the inflation rate. This is because the real interest rate reflects the true cost of borrowing, after adjusting for inflation.

The Nominal Interest Rate Minus the Real Interest Rate Approximately