For a given real interest rate,an increase in inflation makes the after-tax real interest rate
A)decrease,which encourages savings.
B)decrease,which discourages savings.
C)increase,which encourages savings.
D)increase,which discourages savings.

Question

Quizplus · Accepted Answer

An increase in inflation decreases the purchasing power of money, which in turn reduces the after-tax real interest rate earned by savers. This happens because inflation erodes the value of the money earned, making it worth less in the future. As a result, savers are discouraged from saving their money, as they will get lower returns in real terms.

For a Given Real Interest Rate,an Increase in Inflation Makes