If inflation was 1% and the monetary authorities set the nominal interest set at the zero lower bound, the real interest rate would be ________.
A) -1%
B) 0%
C) 1%
D) 2%

Question

Quizplus · Accepted Answer

Real interest rate is calculated as nominal interest rate minus the inflation rate. If nominal interest rate is set at the zero lower bound and inflation is at 1%, then the real interest rate would be negative 1%.

If Inflation Was 1% and the Monetary Authorities Set the Nominal