When the real rate of interest is less than the nominal rate of interest,then:
A) disinflation must be occurring.
B) investment returns cannot increase the purchasing power of an investment.
C) nominal cash flows should be discounted with real rates.
D) the rate of inflation must be positive.

Question

Quizplus · Accepted Answer

The real rate of interest is the nominal rate minus the inflation rate. If the real rate is less than the nominal rate, it indicates that inflation is positive.

When the Real Rate of Interest Is Less Than the Nominal