Question

Treasury bills are currently paying 4.6 percent, and the inflation rate is 1.9 percent.

A) Real interest rate is 4.6%
B) Nominal interest rate is 1.9%
C) Real interest rate is 2.7%
D) Nominal interest rate is 4.6%

Answer 1

The real interest rate can be calculated by subtracting the inflation rate from the nominal interest rate.

Step-by-step explanation:

The real interest rate is the nominal interest rate minus the rate of inflation. So, to find the real interest rate, we can subtract the inflation rate from the nominal interest rate. In this case, the nominal interest rate is 4.6% and the inflation rate is 1.9%. Substituting these values into the formula, we get:

Real interest rate = Nominal interest rate - Inflation rate
= 4.6% - 1.9%
= 2.7%

Therefore, the correct answer is C) Real interest rate is 2.7%.