The real interest rate
A)can never be negative.
B)is approximately equal to the nominal interest rate plus the inflation rate.
C)is approximately equal to the nominal interest rate minus the inflation rate.
D)increases when the inflation rate increases.
E)is determined in the market for money.

Question

Quizplus · Accepted Answer

The real interest rate is approximately equal to the nominal interest rate minus the inflation rate. This is because inflation erodes the purchasing power of money over time, meaning that nominal interest rates must be adjusted for inflation to reflect the true value of money. The real interest rate is therefore a more accurate measure of the cost of borrowing or the return on investment.

The Real Interest Rate