Roughly speaking, the nominal interest rate is __________ than the real interest rate by the amount of the expected __________.
A) higher; growth rate of real GDP
B) higher; inflation rate
C) lower; growth rate of real GDP
D) lower; inflation rate

Question

Quizplus · Accepted Answer

The nominal interest rate is higher than the real interest rate by the amount of expected inflation. This is because the nominal interest rate includes both the real interest rate and the expected inflation rate. In contrast, the real interest rate only accounts for the change in purchasing power of the money lent or borrowed.

Roughly Speaking, the Nominal Interest Rate Is __________ Than the Real