In 2008,inflation exceeded expected inflation.In 2009,expected inflation exceeded inflation.Therefore the real interest rate was ________ than the expected real interest rate in 2008 and the real interest rate was ________ than the expected real interest rate in 2009.
A)less; less
B)less; greater
C)greater; less
D)greater; greater

Question

Quizplus · Accepted Answer

If inflation exceeds expected inflation, then the real interest rate will be lower than the expected real interest rate. So in 2008, the real interest rate was lower than the expected real interest rate. On the other hand, if expected inflation exceeds inflation, then the real interest rate will be higher than the expected real interest rate. So in 2009, the real interest rate was higher than the expected real interest rate. Therefore, the answer is B.

In 2008,inflation Exceeded Expected Inflation