The higher the rate of inflation, the lower the:
A)real interest rate can fall, as long as it is positive.
B)nominal interest rate can fall, as long as it is positive.
C)nominal interest rate can fall.
D)real interest rate can fall.

Question

Quizplus · Accepted Answer

The real interest rate is adjusted for inflation, so as inflation increases, the real interest rate effectively decreases because the purchasing power of the interest earned is reduced. Nominal interest rates do not adjust for inflation directly.

The Higher the Rate of Inflation, the Lower The