The 'real rate' of interest is the:
A)nominal interest rate plus the expected inflation rate.
B)nominal interest rate minus the expected inflation rate.
C)interest rate determined by the supply and demand in the money market.
D)nominal interest rate.

Question

Quizplus · Accepted Answer

The real rate of interest is the nominal interest rate minus the expected inflation rate. This is because inflation reduces the purchasing power of money, so the real rate of interest measures the true increase in purchasing power gained from investing or saving money.

The 'Real Rate' of Interest Is The