For a given nominal interest rate, an unexpectedly high inflation rate ________ the real interest rate.
A)increases
B)decreases
C)has no impact on
D)may either increase or decrease

Question

Quizplus · Accepted Answer

If inflation is higher than expected the real rate of interest decreases, because the real interest rate equals the nominal interest rate minus the inflation rate.

For a Given Nominal Interest Rate, an Unexpectedly High Inflation