The relationship between nominal rates and real rates of return in times of rising inflationary levels results in:

Question

Quizplus · Accepted Answer

In times of rising inflation, nominal rates of return are typically higher than real rates of return. This is because nominal rates include an inflation premium, while real rates do not. As inflation increases, the inflation premium increases, causing the gap between nominal and real rates to widen. Therefore, nominal rates exceed real rates of return in times of rising inflation.

The Relationship Between Nominal Rates and Real Rates of Return