If the borrower and lender agree to a loan at 8% when the inflation rate is 3%, then 8% is the ______ interest rates and 5% is the ______ interest rate.
A) real; nominal
B) nominal; real
C) relative; nominal
D) real; relative

Question

Quizplus · Accepted Answer

The nominal interest rate is the stated rate on the loan, which is 8%. The real interest rate is the nominal rate minus the inflation rate, which is 5% (8% - 3%).

If the Borrower and Lender Agree to a Loan at 8