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

Question

Quizplus · Accepted Answer

When the inflation rate is positive, the real interest rate (nominal interest rate minus inflation rate) is less than the nominal interest rate. This is because the nominal interest rate does not fully account for the decrease in purchasing power caused by inflation, leading to a lower real return on investment.

When the Inflation Rate Is Positive, the