Which of the following statements about real and nominal interest rates is correct?
A)When the nominal interest rate is rising,the real interest rate is necessarily rising;when the nominal interest rate is falling,the real interest rate is necessarily falling.
B)If the nominal interest rate is 4 percent and the inflation rate is 3 percent,then the real interest rate is 7 percent.
C)An increase in the real interest rate is necessarily accompanied by either an increase in the nominal interest rate,an increase in the inflation rate,or both.
D)When the inflation rate is positive,the nominal interest rate is necessarily greater than the real interest rate.

Question

Quizplus · Accepted Answer

The real interest rate is the nominal interest rate adjusted for inflation. When inflation is positive, the nominal interest rate must be higher than the real interest rate to account for the loss of purchasing power due to inflation.

Which of the Following Statements About Real and Nominal Interest