If the actual inflation rate exceeds the anticipated inflation rate,then the real rate of interest
A)is negative.
B)is less than the nominal rate of interest.
C)equals the nominal rate of interest.
D)is more than the nominal rate of interest.

Question

Quizplus · Accepted Answer

The real rate of interest is calculated as nominal rate of interest minus the inflation rate. If the actual inflation rate exceeds the anticipated inflation rate, the real rate of interest will be lower than the nominal rate of interest (because the inflation component of the calculation is higher than expected). Thus, the real rate of interest will be less than the nominal rate of interest.

If the Actual Inflation Rate Exceeds the Anticipated Inflation Rate,then