The real interest rate
A) is approximately equal to the nominal interest rate plus the inflation rate.
B) is positively related to the inflation rate.
C) is approximately equal to the nominal interest rate minus the inflation rate.
D) can never be negative.

Question

Quizplus · Accepted Answer

The real interest rate is the nominal interest rate minus the inflation rate. This is because the nominal interest rate accounts for both the actual borrowing cost and the expected inflation rate, while the real interest rate only accounts for the actual borrowing cost. Therefore, the real interest rate is a more accurate measure of the true cost of borrowing or the return on investment.

The Real Interest Rate