The expected real return to savers equals
A)expected inflation less the nominal return.
B)expected inflation plus the nominal return.
C)the nominal return minus expected inflation.
D)the nominal return divided by expected inflation.

Question

Quizplus · Accepted Answer

The expected real return to savers is calculated by subtracting the expected inflation rate from the nominal return. This is because the nominal return includes the effect of inflation, so in order to calculate the true increase in purchasing power, we need to adjust for inflation. Therefore, the correct formula is nominal return - inflation = real return.

The Expected Real Return to Savers Equals