The real interest rate on a loan
A) is the amount that the consumer agrees to pay
B) is always the same as the nominal rate
C) is always greater than the nominal rate
D) is only of concern when serious inflation occurs
E) is the percentage increase in the lender's purchasing power that results from making the loan

Question

Quizplus · Accepted Answer

The real interest rate on a loan is the percentage increase in the lender's purchasing power that results from making the loan. It takes into account the effects of inflation on the loan, whereas the nominal rate only reflects the stated interest rate. The real interest rate can be greater or less than the nominal rate, depending on the inflation rate.

The Real Interest Rate on a Loan