Interest Rates: Nominal and Real



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Interest rates are the primary yardstick for measuring how much return lenders will get. However, the stated interest rate on a loan, sometimes called the nominal rate, doesn’t tell the whole story.
 
Because of inflation, the purchasing power of every dollar lent out to an individual or a business tends to decrease over time. Lenders take this into account by calculating what’s known as the real interest rate.
 
 

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