If the nominal interest rate is 7 percent and expected inflation is 4.5 percent, then what is the expected real interest rate?
A)11.5 percent
B)7 percent
C)4.5 percent
D)2.5 percent

Question

Quizplus · Accepted Answer

The expected real interest rate is calculated by subtracting the expected inflation rate from the nominal interest rate. Therefore, the expected real interest rate is 2.5 percent (7 percent - 4.5 percent).

If the Nominal Interest Rate Is 7 Percent and Expected