If the expected inflation rate is 3 percent and banks charge a 10 percent money rate of interest, the real rate of interest is
A) 3 percent.
B) 7 percent.
C) 10 percent.
D) 17 percent.

Question

Quizplus · Accepted Answer

The real rate of interest is calculated as the nominal rate of interest minus the expected inflation rate. Therefore, the real rate of interest in this scenario is 10 percent - 3 percent = 7 percent.

If the Expected Inflation Rate Is 3 Percent and Banks