The expected real interest rate (r)is equal to
A)nominal interest rate minus inflation rate.
B)nominal interest rate minus expected inflation rate.
C)expected nominal interest rate minus inflation rate.
D)nominal interest rate plus expected inflation rate.

Question

Quizplus · Accepted Answer

The expected real interest rate is the nominal interest rate minus the expected inflation rate. This is because inflation reduces the purchasing power of any interest earned or received, so the real interest rate accounts for the inflation in order to reflect the true earnings.

The Expected Real Interest Rate (R)is Equal to