HomeQuestionsEconomicsReal Interest Rates and Inflation
📚 Learning Guide
Real Interest Rates and Inflation
easy

If the nominal interest rate is 5% and the inflation rate is 2%, what is the real interest rate?

Master this concept with our detailed explanation and step-by-step learning approach

Learning Path
Learning Path

Question & Answer
1
Understand Question
2
Review Options
3
Learn Explanation
4
Explore Topic

Choose the Best Answer

A

3%

B

5%

C

2%

D

7%

Understanding the Answer

Let's break down why this is correct

Answer

To find the real interest rate, you need to subtract the inflation rate from the nominal interest rate. The nominal interest rate is the stated rate, which in this case is 5%. The inflation rate, which shows how much prices are rising, is 2%. So, you take 5% and subtract 2%, giving you a real interest rate of 3%. This means that after adjusting for inflation, your money is effectively growing by 3% in value.

Detailed Explanation

The real interest rate shows how much you really earn after inflation. Other options are incorrect because This answer confuses nominal and real rates; This option suggests that inflation is your real gain.

Key Concepts

Nominal interest rate
Topic

Real Interest Rates and Inflation

Difficulty

easy level question

Cognitive Level

understand

Ready to Master More Topics?

Join thousands of students using Seekh's interactive learning platform to excel in their studies with personalized practice and detailed explanations.

Start Learning with SeekhExplore More Real Interest Rates and Inflation Questions