You are given the following information about the economy: (1) nominal interest = 8 percent; (2) real rate of interest = 6 percent.The inflation premium is:
A)2 percent.
B)6 percent.
C)8 percent.
D)14 percent.

Question

Quizplus · Accepted Answer

The inflation premium is the difference between the nominal interest rate and the real interest rate. So, inflation premium = nominal interest rate - real interest rate = 8% - 6% = 2%. Therefore, the answer is A - 2 percent.

You Are Given the Following Information About the Economy: (1)