The real interest rate is equal to
A)nominal interest rate + inflation rate.
B)nominal interest rate - inflation rate.
C)nominal interest rate / inflation rate.
D)nominal interest rate × inflation rate.

Question

Quizplus · Accepted Answer

The real interest rate is the nominal interest rate minus inflation rate. This is because the nominal interest rate represents the rate at which the money invested grows, and the inflation rate represents the rate at which the purchasing power of the money declines. Therefore, to find out the actual increase in the value of the money invested (real interest rate), we need to subtract the inflation rate from nominal interest rate.

The Real Interest Rate Is Equal to