The real interest rate is:
A)the percentage increase in money that the lender receives on a loan.
B)the nominal rate less the rate of inflation.
C)also called the after-tax interest rate.
D)usually higher than the nominal interest rate.

Question

Quizplus · Accepted Answer

The real interest rate is the nominal interest rate minus the rate of inflation, as it reflects the true purchasing power of the money earned from the investment or loan. Option A is incorrect as it describes the nominal interest rate, not the real interest rate. Option C is incorrect as it refers to the after-tax nominal interest rate, which is not the same as the real interest rate. Option D is not always true, as the real interest rate can be either higher or lower than the nominal interest rate depending on the inflation rate.

The Real Interest Rate Is