According to the Fisher equation, the real interest rate is given by:
A) zero.
B) the nominal interest rate plus the rate of inflation.
C) the nominal interest rate minus the rate of unemployment.
D) the rate of economic growth.
E) the nominal interest rate minus the rate of inflation.

Question

Quizplus · Accepted Answer

According to the Fisher equation, the real interest rate is equal to the nominal interest rate minus the rate of inflation. This is because the nominal interest rate reflects both the real interest rate and expected inflation. By subtracting the expected inflation rate from the nominal rate, we can estimate the real interest rate, which represents the true return to borrowing or investing after accounting for inflation.

According to the Fisher Equation, the Real Interest Rate Is