Question 1

What is a nominal interest rate?

Accepted Answer

The rate of interest paid for a loan, unadjusted for inflation

(real interest rates have been adjusted)

Question 2

What is a real interest rate?

Accepted Answer

The rate of interest paid for a loan, adjusted for inflation

(nominal interest rates have not been adjusted)

Question 3

How do you calculate a real interest rate?

Accepted Answer

Nominal interest rate minus the actual inflation rate

(nominal = 7%, inflation = 3% -> real = 7% - 3% = 4%)

4.2 Nominal vs Real Interest Rates, AP Macroeconomics Flashcards