If the real interest rate is 8 percent and the inflation rate is 2.5 percent, then the nominal interest rate is
A) 10.5 percent.
B) 2.5 percent.
C) 5.5 percent.
D) 8 percent.
E) 3.2 percent.

Question

Quizplus · Accepted Answer

The nominal interest rate is equal to the sum of the real interest rate and the inflation rate. Therefore, nominal interest rate = real interest rate + inflation rate = 8% + 2.5% = 10.5%.

If the Real Interest Rate Is 8 Percent and the Inflation