Question

The real interest rate equals:

a) The nominal interest rate × the rate of inflation

b) The nominal interest rate divided by the rate of inflation

c) The nominal interest rate minus the rate of inflation

d) The rate of inflation minus the nominal interest rate

Answer 1

The real interest rate is calculated by subtracting the rate of inflation from the nominal interest rate.

Step-by-step explanation:

The real interest rate is calculated by subtracting the rate of inflation from the nominal interest rate. So the correct answer is c) The nominal interest rate minus the rate of inflation. For example, if the nominal interest rate is 5% and the rate of inflation is 2%, then the real interest rate would be 3%.