Question

Which phrase best describes the real interest rate?

A. The nominal interest rate plus the rate of inflation
OB. The rate of inflation minus the nominal interest rate
C. The nominal interest rate minus the rate of inflation
D. The rate of inflation times the nominal interest rate

Answer 1

C) The nominal interest rate minus the rate of inflation.

Step-by-step explanation:

I got it right on the test

Answer 2

C. the nominal interest rate minus the rate of inflation

Step-by-step explanation:

normally the nominal interest rate is set while taking into account the purchasing power as money lose value as time goes on, therefore to get the real interest rate the influence of inflation on interest rate must be excluded.