Walter puts money in a savings account at his bank earning 3.5 percent. One year later he takes his money out and notes that while hus money was earning interest, prices rose 1.5 percent. Walter earned a nominal interest rate of

Question

Quizplus · Accepted Answer

The nominal interest rate is the rate of return before taking inflation into account, while the real interest rate is the rate of return after adjusting for inflation. 
Walter earned a nominal interest rate of 3.5 percent, as stated in the problem. 
To calculate the real interest rate, we subtract the inflation rate from the nominal interest rate: 
Real interest rate = Nominal interest rate - Inflation rate 
Real interest rate = 3.5% - 1.5% = 2% 
Therefore, Walter's real interest rate is 2%, and the correct answer is B.

Walter Puts Money in a Savings Account at His Bank