If the nominal rate of interest is 6 per cent and the real rate of interest is 10 per cent, the rate of inﬂation is _____.
A) 4%
B) -4%
C) 3%
D) -3%

Question

Quizplus · Accepted Answer

The Fisher equation, which describes the relationship between nominal interest rates, real interest rates, and inflation, is given by: nominal rate = real rate + inflation rate. Rearranging this to solve for inflation gives: inflation rate = nominal rate - real rate. Substituting the given values (6% - 10%) results in -4%.

If the Nominal Rate of Interest Is 6 Per Cent