The price level has been rising 5 percent a year for 10 years and is expected to continue to do so. The nominal rate of interest is 4 percent. The real rate of interest is

Question

Quizplus · Accepted Answer

The real interest rate can be calculated using the fisher equation, which is: 
Nominal interest rate - Inflation rate = Real interest rate
Substituting the given values, we get:
4% - 5% = -1%
Therefore, the real interest rate is -1%, which is option D.

The Price Level Has Been Rising 5 Percent a Year