The real rate of interest is
A) the interest rate observed in the market.
B) the interest rate observed in the market minus the anticipated inflation rate.
C) not influenced by inflation.
D) a value that depends upon the stock market.

Question

Quizplus · Accepted Answer

The real rate of interest is the interest rate observed in the market minus the anticipated inflation rate. This means that it takes into account the effect of inflation on the purchasing power of money, and gives a more accurate picture of the true cost of borrowing or the true return on investment. It is not influenced by the stock market, and is different from the nominal interest rate, which is simply the interest rate observed in the market without any adjustment for inflation.

The Real Rate of Interest Is