If the expected rate of inflation is zero, the real interest rate must
A) also equal zero.
B) be greater than the money (nominal) interest rate.
C) be equal to the money (nominal) interest rate.
D) be less than the money (nominal) interest rate.

Question

Quizplus · Accepted Answer

The real interest rate is calculated by subtracting the expected rate of inflation from the money (nominal) interest rate. Therefore, if the expected rate of inflation is zero, the real interest rate will simply be equal to the money (nominal) interest rate.

If the Expected Rate of Inflation Is Zero, the Real