The money rate of interest will be less than the real rate of interest when decision makers anticipate
A) stable prices in the future.
B) falling prices in the future.
C) inflation in the future.
D) that the money rate of interest will decline.

Question

Quizplus · Accepted Answer

When decision makers anticipate falling prices in the future, they will demand less money in the future and therefore lend money at a lower interest rate. This in turn leads to a money rate of interest that is less than the real rate of interest.

The Money Rate of Interest Will Be Less Than the Real