The approximate nominal interest rate is computed as the real rate:
A)minus the risk-free rate.
B)minus the inflation rate.
C)plus the risk-free rate.
D)plus the inflation rate.
E)divided by the inflation rate.

Question

Quizplus · Accepted Answer

The nominal interest rate is the sum of the real interest rate (what the lender gets paid for forgoing consumption) and the expected inflation rate (probability that the money repaid at the end of the loan period will have less purchasing power). Therefore, the approximate nominal interest rate is calculated by adding the real interest rate to the expected inflation rate, resulting in D) plus the inflation rate.

The Approximate Nominal Interest Rate Is Computed as the Real