To obtain a given real rate of return,lenders must charge a ________ nominal interest rate when the inflation rate is high.

Question

Quizplus · Accepted Answer

In order to compensate for the loss in purchasing power due to inflation, lenders must charge a higher nominal interest rate. This is because inflation eats away at the value of the money they will be paid back in the future. Thus, a higher nominal interest rate is needed to maintain the real rate of return.

To Obtain a Given Real Rate of Return,lenders Must Charge