If the rate of inflation is 2 percent, the output gap is 0 percent, the nominal interest rate is 3 percent, and the unemployment rate is 10 percent, what is the real interest rate?
A) 1 percent
B) 2 percent
C) -7 percent
D) -1 percent
E) 3 percent

Question

Quizplus · Accepted Answer

The real interest rate can be calculated by subtracting the inflation rate from the nominal interest rate. Therefore, 3 percent (nominal interest rate) - 2 percent (inflation rate) = 1 percent (real interest rate).

If the Rate of Inflation Is 2 Percent, the Output