Real Interest Rates
Definition
Real Interest Rates refer to interest rates adjusted for inflation. They represent the true cost or return on borrowing or lending money after accounting for changes in purchasing power due to inflation.
Analogy
Think about going shopping with $10 today versus $10 ten years ago. With inflation, prices have increased over time. Similarly, real interest rates take into account how much your money can actually buy in terms of goods and services.
Related terms
Nominal Interest Rates: The stated interest rate without adjusting for inflation.
Inflation Rate: The percentage increase in prices over time.
Fisher Effect: The relationship between nominal interest rates, real interest rates, and expected inflation.
"Real Interest Rates" appears in:
Study guides (2)
Additional resources (1)
Are you a college student?
Study guides for the entire semester
200k practice questions
Glossary of 50k key terms - memorize important vocab
Resources
© 2024 Fiveable Inc. All rights reserved.
AP® and SAT® are trademarks registered by the College Board, which is not affiliated with, and does not endorse this website.