If the nominal interest rate is 4 percent and expected inflation is 2.5 percent,then what is the expected real interest rate?
A)1.6 percent
B)10 percent
C)6.5 percent
D)1.5 percent

Question

Quizplus · Accepted Answer

The expected real interest rate can be found by subtracting the expected inflation rate from the nominal interest rate. 
Real interest rate = Nominal interest rate - Expected inflation rate 
Real interest rate = 4% - 2.5% 
Real interest rate = 1.5% 
Therefore, the expected real interest rate is 1.5%. Option D is the correct answer.

If the Nominal Interest Rate Is 4 Percent and Expected