The nominal interest rate approximately equals which of the following?
A) the real interest rate plus the growth rate of real GDP
B) the real interest rate minus the inflation rate
C) the real interest rate minus the growth rate of real GDP
D) the real interest rate plus the inflation rate

Question

Quizplus · Accepted Answer

The nominal interest rate is the sum of the real interest rate and the inflation rate. This is because the nominal interest rate represents the total amount of compensation that a lender receives for deferring consumption and taking on risk, and this compensation includes both the real interest earned on the loan and the compensation for the loss of purchasing power caused by inflation.

The Nominal Interest Rate Approximately Equals Which of the Following