If inflation does not adjust rapidly,then when the Bank of Canada decreases the nominal interest rate,the real interest rate in the short run will
A) increase.
B) decrease.
C) not change.
D) equal the nominal interest rate.
E) be determined by saving and investment decisions.

Question

Quizplus · Accepted Answer

In the short run, if inflation does not adjust rapidly, a decrease in the nominal interest rate by the Bank of Canada will cause the real interest rate to decrease as well. This is because the decrease in the nominal interest rate will not be fully offset by an increase in inflation, resulting in a lower real interest rate.

If Inflation Does Not Adjust Rapidly,then When the Bank of Canada