Question

If the inflation rate is 6 percent and the nominal interest rate is 4​ percent, then the real interest rate is A. 1.5​ percent, which is the ratio of the nominal interest rate to the inflation rate. B. 2​ percent, which is the inflation rate minus the nominal interest rate. C. 10​ percent, which is the sum of the nominal interest rate and the inflation rate. D. ​-2 percent, which is the nominal interest rate minus the inflation rate. The real interest rate equals
A. the nominal interest rate plus the inflation rate.
B. the inflation rate minus the nominal interest rate.
C. the nominal interest rate divided by the CPI for a given year.
D. the nominal interest rate minus the inflation rate.

Answer 1

Answer:

The correct answer is

D. ​-2 percent, which is the nominal interest rate minus the inflation rate.

The real interest rate equals D. the nominal interest rate minus the inflation rate.

Explanation:

The real interest rate formula is

Real interest rate =Nominal interest rate - Inflation rate

Inflation rate=6 %

Nominal interest rate = 4​%

Real rate of return =4%  - 6 %

Real rate of return = -2%

D. ​-2 percent, which is the nominal interest rate minus the inflation rate.