If the nominal interest rate exceeds the rate of inflation, the real interest rate will
A)not be affected.
B)rise.
C)be greater than zero.
D)be less than zero.
E)fall.

Question

Quizplus · Accepted Answer

When the nominal interest rate exceeds the rate of inflation, the real interest rate, which is calculated as the nominal interest rate minus the inflation rate, will indeed be greater than zero. This is because the real interest rate adjusts the nominal rate for the effects of inflation, showing the true earning power of the money.

If the Nominal Interest Rate Exceeds the Rate of Inflation