What might be an unintended effect of an inflation rate ceiling?
A)The real interest rate can become negative if inflation is high enough.
B)The real interest rate will always be very high, and this will discourage borrowing.
C)Businesses will not know the nominal interest rate.
D)It becomes impossible to calculate the real interest rate.

Question

Quizplus · Accepted Answer

If there is an inflation rate ceiling, it may lead to a situation where the real interest rate becomes negative if the inflation rate is very high. This happens because nominal interest rates cannot go below zero, but if inflation is high enough, even a positive nominal interest rate can result in a negative real interest rate. This can have unintended impacts on the economy, such as discouraging saving and encouraging borrowing, which can lead to further inflationary pressures.

What Might Be an Unintended Effect of an Inflation Rate