When the price level is rising at and the real interest rate

When the price level is rising at and the real interest rate is 1 percent a year, the nominal interest rate is 3 percent a year O A. 4 percent a year O B. 3 percent a year O C. 1 percent a year O D. 2 percent a year

Solution

Ans:

Option D

2 percent a year

Real interest rate = nominal interest rate - inflation rate.

Inflation rate = nominal interest rate - real interest rate

                     = 3% - 1%

                     = 2%