Which of the following describes the correct relationship among the nominal interest rate,the real interest rate,and the inflation rate?
A) Real interest rate = nominal interest rate + inflation rate
B) Real interest rate = nominal interest rate - inflation rate
C) Nominal interest rate = real interest rate - inflation rate
D) Inflation rate = real interest rate - nominal interest rate
E) Inflation rate = nominal interest rate + real interest rate

Question

Quizplus · Accepted Answer

The correct relationship among the three variables is that the real interest rate equals the nominal interest rate minus the inflation rate. This means that the real interest rate reflects the actual purchasing power of the money borrowed or invested, while the nominal interest rate includes the inflation rate as part of the payment for borrowing or investing.

Which of the Following Describes the Correct Relationship Among the Nominal