When the inflation rate is negative, the
A) real interest rate is greater than the nominal interest rate.
B) real interest rate is less than the nominal interest rate.
C) nominal interest rate is zero.
D) real interest rate equals the nominal interest rate.

Question

Quizplus · Accepted Answer

When the inflation rate is negative, it means there is deflation. In such a scenario, the real interest rate (which adjusts the nominal rate for inflation) is greater than the nominal interest rate because the purchasing power of money increases.

When the Inflation Rate Is Negative, the