If the expected inflation rate was 2.5%,the expected real interest rate was 4.0%,and the actual inflation rate turned out to be 3.2%,then the real interest rate equals
A)1)7%.
B)3)2%.
C)3)3%.
D)4)7%.

Question

Quizplus · Accepted Answer

The real interest rate can be calculated using the formula: real interest rate = nominal interest rate - actual inflation rate. The nominal interest rate can be found by adding the expected inflation rate to the expected real interest rate (2.5% + 4.0% = 6.5%). Therefore, the real interest rate when the actual inflation rate is 3.2% is 6.5% - 3.2% = 3.3%, which rounds to approximately 3%.

If the Expected Inflation Rate Was 2