Suppose the nominal interest rate is 10 percent annually, and you deposit $1,000. Inflation in the economy throughout the year is 4 percent. At the end of the year, you have earned a real rate of interest of:
A) 4 percent.
B) 6 percent.
C) 10 percent.
D) 14 percent.

Question

Quizplus · Accepted Answer

The real rate of interest is calculated as the nominal interest rate minus the inflation rate. So, in this case, the real rate of interest earned is 10% - 4% = 6%. Therefore, the best choice is B.

Suppose the Nominal Interest Rate Is 10 Percent Annually, and You