Suppose the nominal interest rate is 5 percent and there is no inflation.What is the real interest rate? A) 5 percent B)

Question

Suppose the nominal interest rate is 5 percent and there is no inflation.What is the real interest rate?  
A) >5 percent 
B) <5 percent 
C) 5 percent 
D) exactly 0 percent

Quizplus · Accepted Answer

The real interest rate is equal to the nominal interest rate when there is no inflation. Inflation reduces the purchasing power of money over time, so the real interest rate takes into account the effect of inflation on the nominal interest rate. However, since there is no inflation in this scenario, the real interest rate is equal to the nominal interest rate of 5 percent.

Suppose the Nominal Interest Rate Is 5 Percent and There