The money rate of interest is the

A) real rate of interest minus the inflationary premium.
B) real rate of interest plus the inflationary premium.
C) real rate of interest divided by the inflationary premium.
D) inflationary premium minus the real interest rate.

Money Rate

The rate of interest charged on short-term loans by banks to their customers.

Real Rate

The interest rate that has been adjusted for inflation, reflecting the real cost of borrowing or the real yield on an investment.

Inflationary Premium

A component of the money interest rate that reflects compensation to the lender for the expected decrease, due to inflation, in the purchasing power of the principal and interest during the course of the loan. It is determined by the expected rate of future inflation.