Real rates of return will be positive as long as:
A) the nominal return is positive.
B) the inflation rate is positive.
C) the nominal return exceeds the inflation rate.
D) the inflation rate exceeds the real return.

Question

Quizplus · Accepted Answer

Real rates of return are calculated by subtracting the inflation rate from the nominal return. Therefore, for real rates of return to be positive, the nominal return must be greater than the inflation rate. Choice A only considers nominal returns, which do not take inflation into account. Choice B implies that positive inflation is necessary for positive real returns, which is not the case. Choice D suggests that the inflation rate is greater than the real return, which would result in negative real returns. Overall, the only choice that accurately reflects the relationship between nominal returns, inflation, and real returns is choice C.

Real Rates of Return Will Be Positive as Long As