Over the past few decades, nominal interest rates have been higher than real rates of interest.This means that
A)lenders must have expected inflation.
B)borrowers must have expected deflation.
C)lenders must have expected prices to fall.
D)borrowers must have expected prices to fall.

Question

Quizplus · Accepted Answer

Nominal interest rates include an inflation premium to account for expected inflation. Therefore, if nominal rates are higher than real rates (which do not include an inflation premium), it is likely that lenders (who receive the interest payments) expect inflation to occur.

Over the Past Few Decades, Nominal Interest Rates Have Been