The expected real interest rate is
A)the ratio of nominal interest rate to the expected inflation rate.
B)the difference between the nominal interest rate and inflation rate.
C)the difference between the nominal interest rate and the expected inflation rate.
D)the ratio of nominal interest rate to the inflation rate.

Question

Quizplus · Accepted Answer

The expected real interest rate is the difference between the nominal interest rate and the expected inflation rate. This is because the nominal interest rate represents the rate at which money is borrowed or lent, while the expected inflation rate represents the rate at which the purchasing power of money is expected to change. The real interest rate is the actual return on invested funds, and is adjusted for the effects of inflation. Therefore, the difference between the nominal interest rate and the expected inflation rate represents the expected real interest rate.

The Expected Real Interest Rate Is