If you want a 4% real interest rate and the expected inflation rate is 3%, you should set the
A)1%
B)4%
C)7%
D)20%

Question

Quizplus · Accepted Answer

To achieve a 4% real interest rate when the expected inflation rate is 3%, you should set the nominal interest rate at 7%. This is because the real interest rate is approximately the nominal interest rate minus the inflation rate (Real Interest Rate ≈ Nominal Interest Rate - Inflation Rate).

If You Want a 4% Real Interest Rate and the Expected