If the bank agrees to make a loan at a 7% interest rate and the inflation rate is 3%,then 4% is the _________ rate.

Question

Quizplus · Accepted Answer

The nominal interest rate is the rate at which the bank lends money, which in this case is 7%. The real interest rate takes into account the inflation rate and subtracts it from the nominal interest rate. So, the real interest rate in this case would be 4% (7% nominal interest rate - 3% inflation rate). Therefore, the answer is B, real interest.

If the Bank Agrees to Make a Loan at a 7