The inflation rate has been 4 percent for twenty years and the nominal interest rate has been 8 percent during this same time period.Unexpectedly,the actual inflation rate the next year is 8 percent.The real rate of interest this last year is
A)zero.
B)2 percent.
C)4 percent.
D)6 percent.

Question

Quizplus · Accepted Answer

The real interest rate is calculated by subtracting the inflation rate from the nominal interest rate. In this case, with an 8 percent nominal interest rate and an 8 percent inflation rate, the real interest rate is 0 percent (8% - 8% = 0%).

The Inflation Rate Has Been 4 Percent for Twenty Years