If the nominal interest rate is 3% and the inflation rate is 6%, the real interest rate is
A)2%
B)3%
C)-3%
D)9%

Question

If the nominal interest rate is 3% and the inflation rate is 6%, the real interest rate is
A)​2%
B)​3%
C)​-3%
D)​9%

Quizplus · Accepted Answer

The real interest rate is calculated by subtracting the inflation rate from the nominal interest rate. Therefore, the real interest rate in this scenario would be 3% - 6% = -3%. This means that the purchasing power of an investment earning a nominal interest rate of 3% would actually decrease by 3% due to inflation, resulting in a negative real return of -3%.

If the Nominal Interest Rate Is 3% and the Inflation