Suppose the consumer price index was 184 in Year 1 and 198.17 in Year 1. The nominal interest rate during this period was steady at 5.8 percent. What was the real interest rate during this period?
A)0.4 percent
B)1.2 percent
C)-1.9 percent
D)-2.6 percent

Question

Quizplus · Accepted Answer

The real interest rate is calculated by subtracting the inflation rate from the nominal interest rate. The inflation rate is ((198.17 - 184) / 184) * 100 = 7.7%. Therefore, the real interest rate is 5.8% - 7.7% = -1.9%.

Suppose the Consumer Price Index Was 184 in Year 1