If the inflation rate is 13 percent and the nominal interest rate is 12 percent, then the
A) real interest rate is approximately 0 percent.
B) nominal interest rate adjusted for inflation is approximately is 25 percent.
C) real interest rate is approximately 1 percent.
D) real interest rate is approximately - 1 percent.

Question

Quizplus · Accepted Answer

The real interest rate is calculated by subtracting the inflation rate from the nominal interest rate. In this case, the real interest rate is approximately -1 percent (12% - 13% = -1%). This means that the purchasing power of the money invested will decrease by 1 percent over the period of the investment.

If the Inflation Rate Is 13 Percent and the Nominal