If the nominal interest rate is 10 percent and the real interest rate is 6 percent,
A)The expected rate of inflation is 4 percent.
B)The expected rate of inflation is 6 percent.
C)Real GDP must exceed nominal GDP.
D)Nominal GDP equals real GDP.

Question

Quizplus · Accepted Answer

The difference between nominal and real interest rates is equal to the expected rate of inflation. In this case, 10% - 6% = 4%, so the expected rate of inflation is 4%.

If the Nominal Interest Rate Is 10 Percent and the Real