For a given nominal interest rate, an unexpectedly low 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

Because the real interest rate equals the nominal interest rate minus the inflation rate, a lower than expected inflation rate increases the real interest rate. So the lender gets an unexpected bonus.

For a Given Nominal Interest Rate, an Unexpectedly Low Inflation