Subtracting the inflation rate from the nominal rate of interest tells you:
A)the nominal rate of return.
B)the real interest rate.
C)the real rate of inflation.
D)None of these statements is true.

Question

Quizplus · Accepted Answer

Subtracting the inflation rate from the nominal rate of interest gives the real interest rate, which reflects the actual increase in purchasing power of the money invested or borrowed. Nominal rates do not consider the effect of inflation, so subtracting the inflation rate from the nominal rate provides an accurate measure of the return on investment or the cost of borrowing adjusted for inflation.

Subtracting the Inflation Rate from the Nominal Rate of Interest