The difference between nominal and real interest rates is that
A)real interest rates are almost always greater than nominal interest rates.
B)real interest rates are what you get after having adjusted nominal rates for inflation.
C)nominal interest rates are what lenders receive and real interest rates are what borrowers pay.
D)nominal interest rates are what borrowers pay and real interest rates are what lenders receive.

Question

Quizplus · Accepted Answer

Nominal interest rates are the stated interest rates, whereas real interest rates are the nominal rates adjusted for inflation. Real interest rates are a better measure of the true cost of borrowing or the true return on investment, as they reflect the purchasing power of money. Inflation erodes the purchasing power of money, so if the nominal interest rate is 10% and the inflation rate is 4%, the real interest rate is 6%.

The Difference Between Nominal and Real Interest Rates Is That