Which of the following statements is logically valid?
A)If the rate of inflation is high,the nominal rate of interest must be low.
B)If the rate of inflation is less than the nominal interest rate,the real interest rate is positive.
C)If the real interest rate is less than the nominal interest rate,inflation must be zero.
D)If the real interest rate is less than the nominal interest rate,inflation must be negative.
E)If the nominal interest rate is high,the real interest rate must be high.

Question

Quizplus · Accepted Answer

The statement in Option B is logically valid. The real interest rate is calculated as the nominal interest rate minus the rate of inflation. So, if the rate of inflation is less than the nominal interest rate, the real interest rate will be positive. This makes sense because the borrower benefits from borrowing at a lower effective interest rate (real interest rate) than the nominal rate.

Which of the Following Statements Is Logically Valid