Which of the following is TRUE regarding the real interest rate?
I. The real interest rate is the opportunity cost of borrowed funds.
II. The real interest rate equals the nominal interest rate adjusted for inflation.
A) I
B) II
C) both I and II
D) neither I nor II

Question

Quizplus · Accepted Answer

Both statements are true. The real interest rate does represent the opportunity cost of borrowing funds, as it reflects the true cost of borrowing money once inflation is taken into account. Additionally, the real interest rate is indeed calculated by adjusting the nominal interest rate for the effects of inflation.

Which of the Following Is TRUE Regarding the Real Interest