If the inflation rate is zero, the nominal interest rate is
A) greater than the real interest rate.
B) less than the real interest rate.
C) equal to the real interest rate.
D) equal to the inflation rate.
E) positive and the real interest rate is negative.

Question

Quizplus · Accepted Answer

When inflation rate is zero, the real interest rate and the nominal interest rate will be equal. The nominal interest rate is the rate quoted by banks and the real interest rate is the nominal rate adjusted for inflation. If inflation is zero, there is no need to adjust the nominal interest rate, and therefore it would be equal to the real interest rate.

If the Inflation Rate Is Zero, the Nominal Interest Rate