The real rate of interest can be defined as the
A) nominal interest rate less the anticipated rate of inflation.
B) anticipated rate of inflation less the nominal interest rate.
C) the market rate of interest expressed in today's dollars.
D) nominal rate of interest less the unanticipated rate of inflation.

Question

Quizplus · Accepted Answer

The real rate of interest is defined as the nominal interest rate (the interest rate before taking inflation into account) minus the anticipated rate of inflation. This gives an idea of the true earning power of an investment or the true cost of a loan, adjusting for the expected decrease in purchasing power due to inflation.

The Real Rate of Interest Can Be Defined as the