The nominal interest rate minus the real interest rate approximately equals the
A) rate of increase in the amount of investment.
B) inflation rate.
C) rate of increase in the income.
D) rate the bank receives to cover lending costs.

Question

Quizplus · Accepted Answer

The nominal interest rate minus the real interest rate is a common approximation for the inflation rate. This relationship is derived from the Fisher equation, which illustrates how the nominal interest rate incorporates both the real interest rate and expected inflation.

The Nominal Interest Rate Minus the Real Interest Rate Approximately