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19 September, 13:48

If the nominal interest rate is 5 percent and there is a deflation rate of 2 percent, what is the real interest rate? (A) 7 percent (B) 5 percent (C) 3 percent (D) 3/5 percent

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  1. 19 September, 14:12
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    Answer: Option (A) is correct.

    Explanation:

    Given that,

    Nominal interest rate = 5%

    Deflation rate = 2 %

    Real interest rate = Nominal interest rate + Deflation rate

    = 5% + 2 %

    = 7%

    If a country is experiencing a deflation then the real interest rate is greater than the nominal interest rate.
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