Suppose you deposit $10 000 in a bank that yields a nominal interest rate of 8 per cent. If you expect inflation to be 6 per cent or lower, then you are expecting to earn a real interest rate of at least:
A) 1.6 per cent.
B) 2 per cent.
C) 4 per cent.
D) 5 per cent.

Question

Quizplus · Accepted Answer

The real interest rate can be calculated as the nominal interest rate minus the inflation rate. Thus, the real interest rate in this scenario would be 8% - 6% = 2%. Therefore, option B is correct as it is greater than 2%.

Suppose You Deposit $10 000 in a Bank That Yields