If the real rate of return is 5 percent, and the inflation rate is 2 percent, then the nominal interest rate must be:
A) 7 percent.
B) 3 percent.
C) −3 percent.
D) −7 percent.

Name: If the real rate of return is 5 percent, and the inflation rate is 2 percent, then the nominal interest rate must be: A) 7 percent. B) 3 percent. C) −3 percent. D) −7 percent.
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Question

Quizplus · Accepted Answer

The nominal interest rate is the sum of the real rate of return and the inflation rate. Therefore, nominal interest rate = 5% + 2% = 7%.

If the Real Rate of Return Is 5 Percent, and the Inflation