If a bank agrees to make a loan at a 10% interest and the inflation rate is 3%,then 7% is the ________ rate.

Name: If a bank agrees to make a loan at a 10% interest and the inflation rate is 3%,then 7% is the ________ rate.
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Question

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The nominal interest rate is the rate quoted by the bank at 10%. However, the inflation rate lowers the purchasing power of money, making the real interest rate (actual return) lower than the nominal interest rate. Thus, the real interest rate is 7%.

If a Bank Agrees to Make a Loan at a 10