The real interest rate is the:
A)stated interest rate without a correction for inflation.
B)interest rate in terms of changes in purchasing power.
C)stated interest rate without a correction for deflation.
D)interest rate after taxes are deducted.

Question

Quizplus · Accepted Answer

The real interest rate is the interest rate adjusted for inflation or changes in purchasing power. Option A is incorrect because it is the nominal interest rate, which does not take into account changes in the price level. Option C is incorrect because deflation, or a decrease in the overall price level, would lead to a higher real interest rate. Option D is incorrect because taxes are not related to the calculation of the real interest rate.

The Real Interest Rate Is The