The true nominal interest rate equals the real rate plus inflation plus (real rate × inflation).

Question

Quizplus · Accepted Answer

This is the exact formula for calculating the true nominal interest rate, where the nominal rate includes the effect of inflation. The real rate refers to the interest rate without taking inflation into account, and adding inflation and the product of the real rate and inflation to the real rate gives the true nominal rate.

The True Nominal Interest Rate Equals the Real Rate Plus