Both the nominal rate of interest and the real return on investment increase with the inflation rate.

Question

Quizplus · Accepted Answer

The nominal rate of interest may increase with inflation as lenders demand higher rates to compensate for the decreased purchasing power of future interest payments. However, the real return on investment, which is adjusted for inflation, typically decreases as inflation increases because the purchasing power of the returns is eroded.

Both the Nominal Rate of Interest and the Real Return