The most significant problem in trying to empirically measure the real rate of interest is that
A)interest rates fluctuate so much from day to day.
B)there are so many different nominal interest rates.
C)expected inflation is unobservable.
D)banks infrequently change the prime rate of interest.
E)there are so many different types of bonds.

Question

Quizplus · Accepted Answer

The real rate of interest is calculated by subtracting the expected rate of inflation from the nominal interest rate, but expected inflation is difficult to observe or predict accurately. This makes it challenging to accurately measure the real rate of interest. The other options are not significant problems in measuring the real rate of interest.

The Most Significant Problem in Trying to Empirically Measure the Real