We can write the true relationship between the nominal interest rate and the real rate and expected inflation as ________.
A)(1 + r)= (1 + r)× (1 + h*)
B)r = (1 + r*)× (1 + h*)- 1
C)(1 + r)= (1 + r*)× (1 + h)
D)r = (1 + r*)× (1 + h)+ 1

Question

Quizplus · Accepted Answer

The true relationship between the nominal interest rate and the real rate and expected inflation can be written as (1 + r) = (1 + r*)× (1 + h), where r is the nominal interest rate, r* is the real interest rate, and h is the expected inflation rate. This equation shows that the nominal interest rate is equal to the sum of the real interest rate and expected inflation. Therefore, option C is the correct choice.

We Can Write the True Relationship Between the Nominal Interest