The real rate of interest equals 2%, and the expected rate of inflation equals 2%. The nominal rate of interest is
A) -2%.
B) 2%.
C) 4%.
D) 0%.

Question

Quizplus · Accepted Answer

The nominal rate of interest is calculated by adding the real rate of interest and the expected rate of inflation. Nominal rate = Real rate + Expected inflation rate = 2% + 2% = 4%. Therefore, the correct choice is C) 4%.

The Real Rate of Interest Equals 2%, and the Expected