The real interest rate is 4 percent a year. When the inflation rate is zero, the nominal interest rate is approximately percent a year; and when the inflation rate is 2 percent a year, the nominal interest rate is approximately percent a year.
A) 4; 6
B) 6; 8
C) 0; 2
D) 6; 4

Question

Quizplus · Accepted Answer

The nominal interest rate is the sum of the real interest rate and the inflation rate. When the inflation rate is zero, the nominal interest rate is equal to the real interest rate, which is 4 percent. When the inflation rate is 2 percent, the nominal interest rate is 4 percent (real) + 2 percent (inflation) = 6 percent.

The Real Interest Rate Is 4 Percent a Year