Suppose the annual nominal interest rate is 10 percent and the inflation rate is 4 percent. If you deposit $1,000, at the end of the year you'll have earned a real rate of interest of:
A) 4 percent.
B) 6 percent.
C) 10 percent.
D) 14 percent.

Question

Quizplus · Accepted Answer

The real rate of interest is the nominal rate minus the inflation rate, which in this case is 10% - 4% = 6%. Therefore, the answer is B) 6%.

Suppose the Annual Nominal Interest Rate Is 10 Percent and the Inflation