It is difficult to determine expected real rates of interest because
A) we cannot measure the inflation rate.
B) we cannot measure the nominal interest rate.
C) the inflation rate is a subjective measurement.
D) we never know exactly what inflation rates people anticipate.

Question

Quizplus · Accepted Answer

Expected real rates of interest are difficult to determine because we never know exactly what inflation rates people anticipate. Inflation expectations play a crucial role in shaping real interest rates because lenders and borrowers build these expectations into their borrowing and lending decisions. Other options are incorrect as inflation and nominal interest rates can be measured, and inflation rates are not necessarily subjective.

It Is Difficult to Determine Expected Real Rates of Interest