Which of the following statements about the historical relationship between nominal interest rates and inflation in Canada is true?

Question

Quizplus · Accepted Answer

The nominal interest rate and the inflation rate have tended to move together in Canada, but the movements are not perfectly matched because the real interest rate has not been constant. This is because the real interest rate = nominal interest rate - inflation rate. Therefore, changes in the nominal interest rate and inflation rate do not always move in perfect lockstep due to changes in the real interest rate. Choice A is incorrect because the nominal interest rate has been higher than the inflation rate at times in Canada. Choice B is incorrect because the movements of nominal interest rates and inflation rates are not always perfectly matched. Choice D is incorrect because the observed relationship is generally consistent with the theory.

Which of the Following Statements About the Historical Relationship Between