If the inﬂation rate is 10 percent and the real interest rate is 12 percent, the nominal interest rate is
A) 2 percent.
B) zero percent.
C) 10 percent.
D) 22 percent.

Question

Quizplus · Accepted Answer

Nominal interest rate = Real interest rate + Inflation rate
or
Nominal interest rate = (1 + Real interest rate) x (1 + Inflation rate) - 1

Using the first formula,
Nominal interest rate = 12% + 10%
= 22%

Hence, the answer is D) 22 percent.

If the Inﬂation Rate Is 10 Percent and the Real