Which of the following statements is true?
A)The rate of inflation is the difference between the real interest rate and a nominal interest rate.
B)The real interest rate is the product of a nominal interest rate and the expected rate of inflation.
C)The real interest rate is the difference between a nominal interest rate and the expected rate of inflation.
D)The nominal interest rate is the difference between a real interest rate and the expected rate of inflation.

Question

Quizplus · Accepted Answer

The real interest rate is calculated by subtracting the expected rate of inflation from the nominal interest rate. Therefore, statement C is true. Statement A is incorrect because it reverses the roles of nominal and real interest rates in relation to inflation. Statement B is incorrect because it multiplies a nominal interest rate with the expected rate of inflation instead of subtracting it. Statement D is also incorrect because it reverse the roles of nominal and real interest rates and their relation to inflation.

Which of the Following Statements Is True