Question:
Given below are two statements: one is labelled as Assertion A and the other is labelled as Reason R. Assertion A: The nominal interest rate can be misleading guide to cost of borrowing. Reason R: The real interest rate is nominal rate of interest plus the rate of inflation.
Given below are two statements: one is labelled as Assertion A and the other is labelled as Reason R. Assertion A: The nominal interest rate can be misleading guide to cost of borrowing. Reason R: The real interest rate is nominal rate of interest plus the rate of inflation.
Show Hint
Real interest rate is approximately nominal interest rate minus inflation rate: \(r=i-\pi\).
Updated On: May 22, 2026
- Both A and R are correct and R is the correct explanation of A
- Both A and R are correct but R is NOT the correct explanation of A
- A is correct but R is not correct
- A is not correct but R is correct
Show Solution
Verified By Collegedunia
The Correct Option is C
Solution and Explanation
Concept: Nominal interest rate is the stated interest rate, while real interest rate adjusts for inflation.
Step 1: Check Assertion A.
The nominal interest rate can be misleading because it does not show the effect of inflation. The true cost of borrowing depends on the real interest rate. \[ \text{Real Interest Rate} = \text{Nominal Interest Rate} - \text{Inflation Rate} \] So Assertion A is correct.
Step 2: Check Reason R.
Reason R says that real interest rate is nominal interest rate plus inflation rate. This is incorrect. The correct relation is: \[ r=i-\pi \] where, \[ r=\text{Real interest rate} \] \[ i=\text{Nominal interest rate} \] \[ \pi=\text{Inflation rate} \]
Step 3: Choose the correct option.
Since Assertion A is correct but Reason R is incorrect, the correct answer is option (C).
Step 1: Check Assertion A.
The nominal interest rate can be misleading because it does not show the effect of inflation. The true cost of borrowing depends on the real interest rate. \[ \text{Real Interest Rate} = \text{Nominal Interest Rate} - \text{Inflation Rate} \] So Assertion A is correct.
Step 2: Check Reason R.
Reason R says that real interest rate is nominal interest rate plus inflation rate. This is incorrect. The correct relation is: \[ r=i-\pi \] where, \[ r=\text{Real interest rate} \] \[ i=\text{Nominal interest rate} \] \[ \pi=\text{Inflation rate} \]
Step 3: Choose the correct option.
Since Assertion A is correct but Reason R is incorrect, the correct answer is option (C).
Was this answer helpful?
0
0
Top CUET PG Economics Questions
- Read the following passage and answer the next five question by choosing the correct options
I first began traveling to India 1980s, drawn by a fascination with this ancient country that cherishes its history, has a deep reverence for learing, and harbors great ambitions for the future. My interest in India was professional as well as personal. Microsoft was expanding, our need talent was growing, and as a CEO I was attracted to the vitality and ingenuity I saw the Indian people. I was really pleased when we opeand Microsoft's Indian headquarters in Hyderabad in 1990.
A few years later, serval colleagues and I were flying into Bangalore. As we made our final approach, I looked out the window and saw an area of densely packed, tiny, dilapidated homes stretching out for miles. At that moment one of my Indian traveling companions declared proudly, "We have no slums in Bangalore".
Wheather out of denial, embarrassment, or innocence, my colleague didn't see the "other" India. I don't mean to single him out. It can be easy to turn our eyes away from the poor. But if we do, we miss seeing a society's full potential.
I knew at the time that I was very fortunate to be collaborating with the most privileged people of India-highly educated citizens of great intelligence, diligence and imagination. But when Melinda and I started our foundation's work in India, we began to meet people from the areas we'd been flying over. They had little education and poor health, and lived in slums or poor rural areas-the kind of people many experts had told us were holding India back. Yet our experiences in India suggests the opposite: that what some call a weakness can instead be a source of great strength.
Our foundation began working in India a decade ago with a number of grants to fight HIV/AIDS at a time many feared India would become a flashpoint for the disease. In the ten years since, that most marginalized groups in Indian society have proved indispensable in the fight against AIDS.
In each case, Melinda and I have seen many examples of India's poor making dramatic contributions for the good of the country. Nowhere have we seen the power of the poor demonstrated more clearly however than in the fight to end polio. Indeed, India's accomplishment in eradicating polio is the most impressive global health success I've ever seen.
Expert's predicted that polio would be eliminated in every other country before it was eliminated in India.
But India surprised them all: They country has now been polio-free for more than two years. As I see it, India's success offers a textbook script for winning some of the world's most difficult battles, not only in public health, but in most every area of human welfare, from business to agriculture to education. And they key as been the participation of the humbleast, most vulnerable elements of the Indian population.
To be successful, any camping this big has to include three elements: a clear goal, a comprehensive plan, and precise measurements-so you can see what is working and what is not and improve the plan as you go. India's polio program has benefited from all three. The goal is clear and ambitious: eliminate polio in India. The plan is massive and comprehensive, big enough to inspire the entire nation to action. The fact that India has fully funded its own antipolio plan is a ringing statement of Indian commitment and self-confidence.
Above all, though, the campaign enlisted the support of the full sweep of Indian society, including health works, ordinary citizens, and some of the poorest people in the most impoverished regions of the country. This program become their cause. It created a groundswell of enthusiasm and tapped the spirit of India.
The campaign showed India at its best-the relentless spirit, the idealism, the teamwork, the scientific power, the business acumen, the manufacturing skill, the political imagination, and the vast human resources that can deploy more than two million people ad spark the imagination of a billion. Yes, India faces challenges in many areas that are well documented in the media. But in its fight against polio, India has shown the world that when its people set an ambitious goal, mobilize the country, and measure the impact, India's promise is endless. - Read the following Sentence carefully and identify the option that has an error.
- I am really exhausted. I had no rest for the last two days. Replace the underlined incorrect verb with the correct one from the options given below:
- Identify the adverbial error in the following sentence by choosing the correct option:
The director of the company will speak shortly on the vision of the project. - Out of the option given below, choose the word that is incorrectly spelt :
View More Questions
Top CUET PG Money and Inflation Questions
- What does a bank do if there are no excess reserves?
- Why is the Phillips curve negatively sloped?
- Which of the followings are correct in the context of inflation?
(A) Higher aggregate demand may lead to demand-pull inflation.
(B) Higher cost of production may lead to cost-push inflation.
(C) Higher international food and fuel prices may lead to inflation.
(D) Higher indirect taxes and lower subsidy may lead to inflation. - Arrange the following rates in ascending order.
(A) Repo Rate
(B) Lending Rate
(C) Deposit Rate
(D) Reverse Repo Rate - What would happen to the rate of interest, in new equilibrium, if the money supply rises in the Mundell-Fleming model under the flexible exchange rate and absolutely free capital mobility, if the international interest rate remains the same?
View More Questions
Top CUET PG Questions
- Given below are two statements:
Statement I: For Plato the meaning of the word 'Justice' is basically a conception in the mind only.
Statement II: For Plato the meaning of the word 'Justice' is fixed, mind-independently
In the light of the above statements, choose the correct answer from the options given below: - What is the electron count of OS6CO182-?
- XeF4 hydrolysis gives A + B, HF, and Oxygen. Find A and B
- What is more basic in pyrol and pyridine?
- Hydrolysis of Al2C3, Be2?
View More Questions