Nominal interest rates are higher than real interest rates as long as
A)expected inflation is positive.
B)the government taxes interest income.
C)inflation is expected to decline in the future.
D)long-term interest rates are higher than short-term interest rates.

Question

Quizplus · Accepted Answer

Nominal interest rates consist of both the real interest rate and the expected inflation rate. If expected inflation is positive, then the nominal interest rate will be higher than the real interest rate as lenders and investors will demand compensation for the erosion of purchasing power caused by inflation.

Nominal Interest Rates Are Higher Than Real Interest Rates as Long