When inflation is much higher than expected, which of the following is true?
A)Nominal incomes are lower than expected.
B)Real interest rates are higher than expected.
C)Income is redistributed from those whose expenditures are fixed toward those who receive a fixed income.
D)Nominal interest rates are lower than expected.
E)Real interest rates are lower than expected.

Question

Quizplus · Accepted Answer

When inflation is higher than expected, the real interest rate, which is the nominal interest rate minus inflation, is lower than expected because the inflation component is larger than anticipated.

When Inflation Is Much Higher Than Expected, Which of the Following