The real rate of interest is equal to the nominal interest rate
A)divided by the price level.
B)minus the rate of inflation.
C)plus the price level.
D)plus the risk ratio.
E)multiplied by the rate of inflation.

Question

Quizplus · Accepted Answer

The real rate of interest is equal to the nominal interest rate minus the rate of inflation. This is because the nominal interest rate includes both the real interest rate and the expected rate of inflation. By subtracting the rate of inflation, we can isolate the real rate of interest.

The Real Rate of Interest Is Equal to the Nominal