When the real rate of interest is less than the nominal rate of interest,then:
A) inflation must be added to the nominal rate.
B) investment returns do not increase purchasing power.
C) nominal flows should be discounted with real rates.
D) inflation is expected to occur.

Question

Quizplus · Accepted Answer

When the real rate of interest is less than the nominal rate, it indicates that inflation is expected to occur, as the nominal rate includes both the real rate and the expected inflation rate.

When the Real Rate of Interest Is Less Than the Nominal