AP®︎ Macroeconomics: Topic 4.2 Flashcards

Master key terms and definitions for Topic 4.2 of AP Macroeconomics – Nominal v. Real Interest Rates to help you prep for quizzes and the AP exam.

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Term

Nominal And Real Interest Rate Formulas

Definition

Nominal rate = real rate + expected inflation; real rate = nominal rate - actual inflation.

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Nominal And Real Interest Rate Formulas
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Nominal rate = real rate + expected inflation; real rate = nominal rate - actual inflation.

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Expected Inflation
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The inflation rate lenders and borrowers anticipate when setting a nominal interest rate.

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Nominal Vs. Real Interest Rates
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The stated rate is unadjusted for inflation, while the inflation-adjusted rate shows actual borrowing cost.

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