When you subtract the expected rate of inflation from the nominal rate of interest, you calculate the
A)real rate of interest.
B)real rate of inflation.
C)expected rate of interest.
D)expected rate of price increases.

Question

Quizplus · Accepted Answer

When you subtract the expected rate of inflation from the nominal rate of interest, you calculate the real rate of interest, which represents the return on an investment after adjusting for the effects of inflation. The real rate of interest is a critical measure of the true cost of borrowing or the true return on investment.

When You Subtract the Expected Rate of Inflation from the Nominal