Suppose that banks are issuing personal loans at 9%. If expected inflation is 3%, then the nominal interest rate is _____% and the real interest rate is _____%.
A) 6; 9
B) 9; 6
C) 9; 3
D) 6; 12

Question

Quizplus · Accepted Answer

The nominal interest rate is the rate at which money grows, so it is 9%. The real interest rate is the nominal interest rate minus the inflation rate, so it is 9% - 3% = 6%. Therefore, choice B is the correct answer.

Suppose That Banks Are Issuing Personal Loans at 9