In the year 2015, the real rate of interest in a country was 6% and the inflation rate was 3%. Based on these values, what was the approximate nominal rate of interest in that year?

Introduction / Context:
This question checks understanding of the relationship between nominal interest rates, real interest rates, and inflation, concepts that are central to macroeconomics and financial planning. Lenders and borrowers are interested in the real return on loans after adjusting for changes in the price level, while the nominal rate is the stated interest rate. The famous Fisher equation links these three measures in a simple way that is frequently tested in exams.

Given Data / Assumptions:

• Real rate of interest (r) = 6%.
• Inflation rate (i) = 3%.
• We are asked to find the nominal rate of interest (n) for the same period.
• We assume moderate inflation so that the commonly used approximate formula is valid.

Concept / Approach:
The approximate relationship between nominal interest rate, real interest rate, and inflation is given by the Fisher equation: nominal rate ≈ real rate + inflation rate. This is usually accurate when inflation is not extremely high. The exact Fisher equation also includes a product term, but for small percentages, the approximation works very well. With a real rate of 6 percent and inflation of 3 percent, the nominal rate should be roughly the sum of these two figures.

Step-by-Step Solution:
Step 1: Write down the Fisher equation in approximate form. Nominal rate ≈ Real rate + Inflation rate. Step 2: Substitute the given values. Nominal rate ≈ 6% + 3%. Step 3: Add the two rates. Nominal rate ≈ 9%. Step 4: Compare this result with the options provided and select the matching value.

Verification / Alternative check:
The exact Fisher equation is: 1 + nominal rate = (1 + real rate) * (1 + inflation rate). Substituting decimal values, 1 + n = (1 + 0.06) * (1 + 0.03) = 1.06 * 1.03 = 1.0918. Therefore, n = 0.0918, or about 9.18 percent. This exact calculation is very close to 9 percent, confirming that 9 percent is a suitable nominal rate using either the approximate or the exact formula. In multiple choice questions, such small differences are rounded.

Why Other Options Are Wrong:
Option A (3%) would correspond to a situation where nominal and inflation rates are equal and real rate is zero, which does not match the given data. Option B (6%) would imply zero inflation, contradicting the stated 3 percent inflation rate. Option D (12%) would imply a much higher nominal rate than required by the Fisher equation and does not follow from adding 6 and 3 percent. Therefore, only 9 percent is consistent with the definitions and formulas.

Common Pitfalls:
Students sometimes subtract inflation from nominal interest when they should be adding it to the real rate to get nominal. Others may confuse the real rate with the nominal rate and forget the adjustment for inflation altogether. A further mistake is to multiply rates or mix up the exact and approximate formulas. Remembering that real rate is roughly nominal minus inflation and that nominal is real plus inflation is the key to avoid such errors.

Final Answer:
The nominal rate of interest in 2015 was approximately 9%.