The Fed cannot achieve a negative real interest rate if the inflation rate is zero or negative because:
A)the nominal interest rate cannot fall below zero.
B)inflation doves will not permit a negative real interest rate.
C)zero or negative values of inflation can not be accurately measured.
D)inflationary expectations are not anchored when the inflation rate is zero.

Question

Quizplus · Accepted Answer

The real interest rate is calculated as the nominal interest rate minus the inflation rate. If the inflation rate is zero or negative, the nominal interest rate would have to be negative to achieve a negative real interest rate. However, nominal interest rates cannot fall below zero, which is known as the zero lower bound.

The Fed Cannot Achieve a Negative Real Interest Rate If