The real interest rate is the:
A) rate of interest actually paid by consumers.
B) rate of interest actually paid by banks.
C) rate of inflation minus the nominal interest rate.
D) nominal interest rate minus the rate of inflation.

Question

Quizplus · Accepted Answer

The real interest rate is calculated by subtracting the rate of inflation from the nominal interest rate. This gives a more accurate picture of the true cost of borrowing or the true return on savings, as it takes into account the effects of inflation on purchasing power. Option D correctly states that the nominal interest rate minus the rate of inflation gives the real interest rate.

The Real Interest Rate Is The