The real interest rate
A) can never be negative.
B) is approximately equal to the nominal interest rate plus the inflation rate.
C) is approximately equal to the nominal interest rate minus the inflation rate.
D) is positively related to the inflation rate.

Question

Quizplus · Accepted Answer

The real interest rate is calculated by subtracting the inflation rate from the nominal interest rate, not by adding it or having a direct positive relationship with inflation. This adjustment is made to reflect the true cost of borrowing or the real yield on savings, after accounting for the eroding effect of inflation on purchasing power.

The Real Interest Rate