Which of the following describes the rate at which your ability to purchase grows while you hold an interest-earning investment?
A) the nominal exchange rate
B) the nominal interest rate
C) the real exchange rate
D) the real interest rate

Question

Quizplus · Accepted Answer

The real interest rate is the rate at which your ability to purchase grows while accounting for inflation. It represents the actual increase in purchasing power you will experience from holding an interest-earning investment. The nominal interest rate, on the other hand, only indicates the stated rate of return before factoring in inflation. Therefore, the real interest rate is the best choice for describing the growth in purchasing power from an interest-earning investment.

Which of the Following Describes the Rate at Which Your