Real interest rates in economics and finance

Before we dive into the intricacies of real interest rates, let's establish a foundation by understanding the concept of interest rates themselves. In simple terms, an interest rate is the cost of borrowing money or the return on investment. It is expressed as a percentage and is typically calculated on an annual basis. While interest rates are commonly encountered in various financial contexts, such as loans and savings accounts, real interest rates provide a more accurate picture of the true cost or return due to their adjustment for inflation.