In 2016 the nominal interest rate paid by banks on savings deposits was 0.55 percent. At the same time the inflation rate was 1.5 percent. What was the real interest rate paid on savings?
A)-2.05 percent
B)-1.05 percent
C)0)55 percent
D)2.05 percent
E)3.10 percent

Question

Quizplus · Accepted Answer

The real interest rate is the nominal interest rate minus the inflation rate. Therefore, the real interest rate paid on savings in 2016 was -1.5% + 0.55% = -0.95%, which is equivalent to -0.0095 in decimal form. Hence the best choice is B.

In 2016 the Nominal Interest Rate Paid by Banks on Savings