Which of the following increases the real interest rate?

Question

Quizplus · Accepted Answer

Real interest rate is calculated as nominal interest rate minus inflation rate. Therefore, a decrease in inflation rate while holding the nominal interest rate constant will increase the real interest rate. Option A would not change the real interest rate as the increase in nominal rate is offset by the increase in inflation rate. Option C would decrease the nominal interest rate but the impact on the real interest rate would depend on the inflation rate. Option D would decrease the real interest rate as both nominal interest rate and inflation rate decrease by the same amount.

Which of the Following Increases the Real Interest Rate