The nominal interest rate minus the expected rate of inflation ________.
A) defines the real rate of inflation
B) is a worse measure of the incentives to borrow and lend than is the nominal interest rate
C) is a more accurate indicator of the tightness of credit market conditions than is the nominal interest rate
D) defines the bank rate

Question

Quizplus · Accepted Answer

The nominal interest rate minus the expected rate of inflation provides a clearer picture of the real cost of borrowing and the real return on lending, making it a more accurate indicator of the tightness of credit market conditions than the nominal interest rate alone.

The Nominal Interest Rate Minus the Expected Rate of Inflation