The real interest rate can be calculated using the Fisher equation:

$\text{Real Interest Rate} = \text{Nominal Interest Rate} - \text{Inflation Rate}$

Given:

• Nominal Interest Rate = 0%
• Inflation Rate = -2% (deflation, meaning prices are falling)

Now substitute the values:

$\text{Real Interest Rate} = 0\% - (-2\%) = 0\% + 2\% = 2\%$

So, the real interest rate is 2% per year.

This means that even with a 0% nominal interest rate, the lender gains purchasing power due to the negative inflation rate (deflation).

---

Would you like a deeper explanation of real vs. nominal interest rates or related concepts?

Here are some follow-up questions for further exploration:

1. What is the difference between nominal and real interest rates?
2. How does deflation affect borrowers and lenders?
3. Why might a borrower still accept a loan at 0% nominal interest with deflation?
4. How do central banks respond to deflation with interest rate policies?
5. Can a negative nominal interest rate exist, and what does that mean for lenders and borrowers?

Tip: Real interest rates account for inflation, helping you understand the true gain or loss in purchasing power over time.