When the rate of inflation is low and stable, the real and nominal interest rates are not very different.

Question

Quizplus · Accepted Answer

When the rate of inflation is low and stable, it doesn't have a significant impact on the nominal interest rates. Thus, the real interest rates (nominal interest rates adjusted for inflation) are also not significantly different from nominal interest rates. This implies that the difference between nominal and real interest rates (i.e., inflation premium) is also low, indicating a stable economic environment.

When the Rate of Inflation Is Low and Stable, the Real