The real interest rate can be estimated by
A) subtracting the pure interest rate from the nominal interest rate.
B) dividing the nominal interest rate by the consumer price index.
C) subtracting the nominal interest rate from the rate of inflation.
D) subtracting the rate of inflation from the nominal interest rate.

Question

Quizplus · Accepted Answer

The real interest rate is calculated by subtracting the rate of inflation from the nominal interest rate. This gives the actual return on an investment after accounting for the impact of inflation. Option A is incorrect as the pure interest rate is not used in the calculation of the real interest rate. Option B is incorrect as it gives the inflation rate, not the real interest rate. Option C is incorrect as it gives the nominal interest rate minus the rate of inflation, which is not the real interest rate.

The Real Interest Rate Can Be Estimated by