The nominal interest rate will be less than the real interest rate when the:
A)rate of inflation is positive but decreasing.
B)rate of inflation is positive and increasing.
C)rate of inflation is negative.
D)real interest rate is negative.

Question

Quizplus · Accepted Answer

The nominal interest rate will be less than the real interest rate when there is deflation, meaning the rate of inflation is negative. This is because the real interest rate is adjusted for inflation, so if inflation is negative (deflation), the real interest rate would be higher than the nominal rate.

The Nominal Interest Rate Will Be Less Than the Real