If people expect an inflation rate of 3.3 percent, and the real interest rate is 3 percent, the nominal interest rate equals (approximately)
A) 8.6 percent.
B) 6.3 percent.
C) 9.9 percent.
D) 0.3 percent.

Question

Quizplus · Accepted Answer

The nominal interest rate is approximately the sum of the real interest rate and the expected inflation rate. Therefore, 3% (real interest rate) + 3.3% (expected inflation rate) = 6.3%.

If People Expect an Inflation Rate of 3