Because expected inflation is typically positive, we know that:
A) the nominal interest rate is generally less than the real interest rate.
B) the real interest rate rate is approximately equal to zero.
C) the nominal interest can be negative.
D) the real interest rate is generally less than the nominal interest rate.
E) the nominal and real interest rates are generally equal.

Question

Quizplus · Accepted Answer

The expected inflation rate is added to the real interest rate to get the nominal interest rate, so if inflation is positive, the nominal interest rate will be higher than the real interest rate. Therefore, the real interest rate is generally less than the nominal interest rate.

Because Expected Inflation Is Typically Positive, We Know That