The real rate of interest is:
A) the nominal rate of interest plus the inflation rate.
B) the nominal rate of interest minus the inflation rate.
C) the inflation rate divided by the nominal rate of interest.
D) this year's nominal rate of interest minus last year's nominal rate of interest.

Question

Quizplus · Accepted Answer

The real rate of interest is calculated by subtracting the inflation rate from the nominal rate of interest. This adjustment is made to reflect the true cost of borrowing or the true return on investment, taking into account the eroding effect of inflation on purchasing power.

The Real Rate of Interest Is