Suppose you are earning 5 percent nominal interest on your savings account.If the rate of inflation is 3 percent,the real rate of interest you are earning is
A)2 percent.
B)3 percent.
C)5 percent.
D)8 percent.

Question

Quizplus · Accepted Answer

The real rate of interest is calculated by subtracting the inflation rate from the nominal interest rate. In this case, the nominal interest rate is 5 percent and the inflation rate is 3 percent. Therefore, the real rate of interest is 2 percent (5% - 3% = 2%). So, the best choice is A.

Suppose You Are Earning 5 Percent Nominal Interest on Your