When there is high inflation
A) interest rates fall due to government policy.
B) the real interest rate is always greater than the nominal interest rate.
C) the nominal interest rate is always greater than the real interest rate.
D) the real interest rate is always negative.
E) the nominal interest rate is approximately equal to the real interest rate.

Question

Quizplus · Accepted Answer

In times of high inflation, nominal interest rates tend to increase to compensate for the decrease in purchasing power of money. However, the real interest rate (which takes inflation into account) may be negative or lower than the nominal interest rate, resulting in an actual decrease in purchasing power despite the higher nominal interest rate. Therefore, the nominal interest rate is always greater than the real interest rate.

When There Is High Inflation