Which of the following approximately equals the real interest rate?
A) the nominal interest rate plus the inflation rate
B) the nominal interest rate minus the growth rate of GDP
C) the rate paid when the best customers of banks borrow money
D) the nominal interest rate minus the inflation rate

Question

Quizplus · Accepted Answer

The real interest rate is the nominal interest rate minus the inflation rate. This is because the inflation rate represents the increase in the general price level, and the nominal interest rate represents the cost of borrowing or the return earned on an investment in terms of money. Therefore, to determine the actual increase in purchasing power due to an investment, the inflation rate must be subtracted from the nominal interest rate.

Which of the Following Approximately Equals the Real Interest Rate