If the real interest rate is 11 percent and the price level is falling at a rate of 5 percent, what is the nominal interest rate?
A)6 percent
B)-5 percent
C)0.6 percent

Question

Quizplus · Accepted Answer

The nominal interest rate can be calculated by adding the real interest rate to the inflation rate. In this case, since the price level is falling (deflation) at a rate of 5 percent, the inflation rate is -5 percent. Therefore, the nominal interest rate is 11 percent (real interest rate) - 5 percent (inflation rate) = 6 percent.

If the Real Interest Rate Is 11 Percent and the Price