The real interest rate is equal to the:
A) amount of interest that a lender actually receives when making a loan.
B) nominal interest rate plus the inflation rate.
C) nominal interest rate minus the inflation rate.
D) nominal interest rate.

Question

Quizplus · Accepted Answer

The real interest rate is the nominal interest rate minus the inflation rate. This is because the nominal interest rate represents the actual rate of interest charged by the lender, while inflation reduces the purchasing power of the money being lent or borrowed. Therefore, to determine the actual increase in purchasing power from borrowing, the inflation rate must be subtracted from the nominal interest rate to determine the real interest rate.

The Real Interest Rate Is Equal to The