If the bank advertises 6 percent annual interest rate on a one-year certificate of deposit and you anticipate the rate of inflation to rise to 3 percent during the year, then the real rate of interest on the certificate of deposit is

Question

Quizplus · Accepted Answer

The real rate of interest can be approximated by subtracting the anticipated inflation rate from the nominal interest rate. Therefore, 6 percent (nominal rate) - 3 percent (inflation rate) = 3 percent (real rate of interest).

If the Bank Advertises 6 Percent Annual Interest Rate on a One-Year