If Homer is paid an interest rate of 2% on his savings, but the inflation rate is 12%, the real interest rate Homer earns is
A) -12%.
B) -10%.
C) 2%.
D) 14%.

Question

Quizplus · Accepted Answer

To find the real interest rate, we need to subtract the inflation rate from the interest rate. In this case, the real interest rate is:

2% - 12% = -10%

This means that Homer's savings are actually losing value, since the inflation rate is higher than the interest rate he is earning.

If Homer Is Paid an Interest Rate of 2% on His