If the real rate of return is 2 percent, and the inflation rate is 2 percent, then the nominal interest rate must be:
A) 4 percent.
B) 2 percent.
C) −2 percent.
D) −4 percent.

Question

Quizplus · Accepted Answer

The nominal interest rate is equal to the real rate of return plus the expected inflation rate. Therefore, nominal interest rate = real rate of return + inflation rate = 2% + 2% = 4%.

If the Real Rate of Return Is 2 Percent, and the Inflation