When there is high inflation
A) interest rates fall due to government policy.
B) the real interest rate is always greater than the nominal interest rate.
C) the nominal interest rate is always greater than the real interest rate.
D) the real interest rate is always negative.
E) the nominal interest rate is approximately equal to the real interest rate.

Question

Quizplus · Accepted Answer

In high inflation, the nominal interest rate is always greater than the real interest rate. This is because the nominal interest rate reflects the actual interest rate, while the real interest rate adjusts for inflation. As inflation increases, the real value of the interest paid decreases, so the nominal interest rate needs to be higher to maintain the same real return.

When There Is High Inflation