If the bank posts a nominal interest rate of 7 per cent per year and the inflation rate is 4 per cent per year, then the real interest rate is:
A) -3 per cent
B) 3 per cent
C) 4 per cent
D) 11 per cent

Question

If the bank posts a nominal interest rate of 7 per cent per year and the inflation rate is 4 per cent per year, then the real interest rate is: 
A) -3 per cent
B) 3 per cent
C) 4 per cent
D) 11 per cent

Quizplus · Accepted Answer

Real interest rate = nominal interest rate - inflation rate
= 7% - 4%
= 3%
Therefore, the real interest rate is 3%.

If the Bank Posts a Nominal Interest Rate of 7