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

Question

Quizplus · Accepted Answer

The nominal interest rate is the sum of the real interest rate and the inflation rate. When inflation is 0%, the nominal rate is 4% (4% + 0%). When inflation is 2%, the nominal rate is 6% (4% + 2%).

The Real Interest Rate Is 4 Per Cent a Year