The real rate of interest is 3 percent and inflation is 4 percent. What is the nominal rate of interest?
A)3.00 percent
B)1.00 percent
C)7.12 percent
D)-1.00 percent

Question

Quizplus · Accepted Answer

The nominal rate of interest is equal to the real rate of interest plus the inflation rate. Therefore, the nominal rate of interest in this case is 7.12 percent (3 percent + 4 percent).

The Real Rate of Interest Is 3 Percent and Inflation