If inflation is eight percent, a nominal interest rate of six percent translates into a real interest rate of two percent.

Question

Quizplus · Accepted Answer

The nominal interest rate is the rate that does not take into account inflation, while the real interest rate is the rate that takes inflation into account. To calculate the real interest rate, we subtract the inflation rate from the nominal interest rate. In this case, the real interest rate would be -2% because 6% - 8% = -2%. Therefore, the statement is false.

If Inflation Is Eight Percent, a Nominal Interest Rate of Six