If the nominal interest rate is 4 percent and the inflation rate is 1 percent, then the real rate of interest is
A) 1 percent.
B) 3 percent.
C) 4 percent.
D) 5 percent.

Question

Quizplus · Accepted Answer

The real rate of interest is calculated by subtracting the inflation rate from the nominal interest rate. Therefore, the real rate of interest in this scenario is 4% - 1% = 3%. The correct answer is B.

If the Nominal Interest Rate Is 4 Percent and the Inflation