As long as prices are rising over time, then
A)the nominal interest rate exceeds the real interest rate.
B)the real interest rate exceeds the nominal interest rate.
C)the real interest rate is positive.
D)the nominal interest rate is a better indicator than the real interest rate of how fast the purchasing power of your bank account is changing over time.

Question

Quizplus · Accepted Answer

The nominal interest rate exceeds the real interest rate when prices are rising over time because the real interest rate is adjusted for inflation, whereas the nominal rate is not. Rising prices (inflation) reduce the purchasing power of money, so the real interest rate will be lower than the nominal rate when inflation is positive.

As Long as Prices Are Rising Over Time, Then