If inflation is zero percent, nominal interest rates will be:
A) equal to real interest rates.
B) larger than real interest rates.
C) smaller than real interest rates.
D) equal to the optimal rate.

Question

Quizplus · Accepted Answer

When inflation is zero percent, real interest rates will be equal to nominal interest rates. This means that there is no need to adjust nominal interest rates to account for inflation, since there is no inflation to account for. Therefore, nominal interest rates will be equal to the real interest rates.

If Inflation Is Zero Percent, Nominal Interest Rates Will Be