If the nominal interest rate increases without any change in the rate of inflation in an economy,________.

Question

Quizplus · Accepted Answer

The real interest rate is calculated by subtracting the rate of inflation from the nominal interest rate. If the nominal interest rate increases without any change in the rate of inflation, the real interest rate also increases. This is because the purchasing power of money increases, and lenders are able to get a higher return on their investment, in real terms.

If the Nominal Interest Rate Increases Without Any Change in the Rate