When persistent inflation is present, we would expect
A) borrowers to systematically gain at the expense of lenders.
B) lenders to systematically gain at the expense of borrowers.
C) nominal interest rates to be higher than would be true if prices were stable.
D) nominal interest rates to be lower than real interest rates.

Question

Quizplus · Accepted Answer

Nominal interest rates are typically higher than real interest rates when persistent inflation is present because lenders demand a premium to compensate for the expected loss of purchasing power due to inflation.

When Persistent Inflation Is Present, We Would Expect