To determine the real interest rate given a nominal interest rate and an inflation rate, we use the Fisher equation. The Fisher equation is given by:
[tex]\[ \text{Real Interest Rate} = \text{Nominal Interest Rate} - \text{Inflation Rate} \][/tex]
Here's the step-by-step solution:
1. Identify the nominal interest rate, which is 4.00%.
2. Identify the inflation rate, which is 2.25%.
3. Subtract the inflation rate from the nominal interest rate to find the real interest rate:
[tex]\[ \text{Real Interest Rate} = 4.00\% - 2.25\% \][/tex]
4. Perform the subtraction:
[tex]\[ 4.00\% - 2.25\% = 1.75\% \][/tex]
Therefore, the real interest rate is [tex]\(1.75\%\)[/tex].
So, the correct answer is:
[tex]\[ \boxed{1.75\%} \][/tex]
