Which of the following equations is correct?
A) Realized real interest rate = Nominal interest rate ‒ Realized nominal interest rate.
B) Realized real interest rate = Nominal interest rate + Realized inflation rate.
C) Realized real interest rate = Nominal interest rate ‒ Realized inflation rate.
D) Realized real interest rate = Realized inflation rate.

Question

Quizplus · Accepted Answer

The realized real interest rate equals the nominal interest rate minus the realized inflation rate. This equation takes into account that inflation reduces the purchasing power of money over time, so the nominal interest rate must be adjusted by the inflation rate to accurately measure the true return on an investment in terms of real goods and services.

Which of the Following Equations Is Correct