An approximation to the "real" interest rate can be calculated by
A) subtracting the nominal interest rate from the inflation rate.
B) subtracting the price level from the nominal interest rate.
C) dividing the nominal interest rate by the inflation rate.
D) subtracting the inflation rate from the nominal interest rate.

Question

Quizplus · Accepted Answer

The "real" interest rate takes into account the impact of inflation on the nominal interest rate, as inflation erodes the purchasing power of money over time. Therefore, the best choice is to subtract the inflation rate from the nominal interest rate.

An Approximation to the "Real" Interest Rate Can Be Calculated