What is meant by the term “rate of interest”? If the nominal rate of i

What is meant by the term “rate of interest”? If the nominal rate of interest in an economy is 6%, and the rate of inflation in the economy is 4%, what is the real rate of interest in the economy?

What will be an ideal response?

ANSWER

The rate of interest is the additional payment a borrower has to make on a one-dollar loan typically at the end of a year.
The real rate of interest = nominal rate of interest – inflation rate → the real rate of interest = 2%.