If both the real interest rate and the nominal interest rate are 3 percent, then the
A) inﬂation premium is zero.
B) real GDP must exceed the nominal GDP.
C) nominal GDP must exceed the real GDP.
D) inﬂation premium also is 3 percent.

Question

Quizplus · Accepted Answer

If both the real and nominal interest rates are 3 percent, then the inflation premium (the additional interest rate required to compensate for expected inflation) is zero. This means that the quoted nominal interest rate is equal to the real interest rate.

If Both the Real Interest Rate and the Nominal Interest