If people expect an inflation rate of 3.3 percent, and the real interest rate is 3 percent, the nominal interest rate equals (approximately)
A) 0.3 percent.
B) 8.6 percent.
C) 6.3 percent.
D) 9.9 percent.

Question

Quizplus · Accepted Answer

The nominal interest rate can be approximated by adding the expected inflation rate to the real interest rate. Therefore, 3.3% (expected inflation rate) + 3% (real interest rate) = 6.3%.

If People Expect an Inflation Rate of 3