The nominal interest rate minus the inflation rate is the
A)depreciation rate.
B)real interest rate.
C)discount rate.
D)forward rate.

Question

Quizplus · Accepted Answer

The nominal interest rate minus the inflation rate is known as the real interest rate. This takes into account the effect of inflation on the purchasing power of money. A high nominal interest rate may not be beneficial if the inflation rate is even higher, as it means the real value of savings is decreasing. Therefore, the real interest rate is a more accurate measure of the cost of borrowing or the return on investment.

The Nominal Interest Rate Minus the Inflation Rate Is the