In the classical model,we assume there is no ongoing inflation,so there is no need to distinguish between the nominal interest rate and the real interest rate.

Question

Quizplus · Accepted Answer

In the classical model, there is no expectation of inflation, so the nominal interest rate is equal to the real interest rate. However, in the modern economy, where inflation is a common occurrence, the distinction between nominal and real interest rates is essential. Therefore, the given statement is true only for the classical model.

In the Classical Model,we Assume There Is No Ongoing Inflation,so