The real rate of interest equals the
A) money rate of interest minus the expected inflation rate.
B) money rate of interest plus the expected inflation rate.
C) inflationary premium.
D) nominal rate of interest.

Question

Quizplus · Accepted Answer

The real rate of interest is the nominal rate of interest minus the expected inflation rate. This is because inflation erodes the purchasing power of money over time, so the real rate of interest reflects the true increase in purchasing power that a lender or investor receives.

The Real Rate of Interest Equals the