If the real interest rate is 4 percent and the nominal interest rate is 7 percent, this implies an expected inflation rate of
A) 3 percent.
B) 4 percent.
C) 5.5 percent.
D) 11 percent.

Question

Quizplus · Accepted Answer

Real interest rate = Nominal interest rate - Inflation rate
Given, Real interest rate = 4%
Nominal interest rate = 7%
Substituting the values, we get:
4% = 7% - Inflation rate
Therefore, the expected inflation rate = 7% - 4% = 3%. 
Hence, the correct answer is choice A) 3 percent.

If the Real Interest Rate Is 4 Percent and the Nominal