When the inflation rate is positive, the
A) nominal interest rate is zero.
B) real interest rate is less than the nominal interest rate.
C) real interest rate is greater than the nominal interest rate.
D) real interest rate equals the nominal interest rate.

Question

Quizplus · Accepted Answer

When the inflation rate is positive, the real interest rate (which is the nominal interest rate minus the inflation rate) will be less than the nominal interest rate. This is because the nominal interest rate does not take into account the effect of inflation on the purchasing power of the money borrowed or invested.

When the Inflation Rate Is Positive, the