The following figure shows the inflation rate and ten-year bond yield. Refer to this figure when answering
Figure 14.4: Inflation and 10-Year Bond Yields
-Consider Figure 14.4 above. For most of 2008 the:
A) real interest rate was negative
B) 10-year-bonds' nominal interest rate was less than the real interest rate
C) real interest rate was zero
D) real interest rate was positive
E) None of these answers are correct.

Question

The following figure shows the inflation rate and ten-year bond yield. Refer to this figure when answering  
Figure 14.4: Inflation and 10-Year Bond Yields 
-Consider Figure 14.4 above. For most of 2008 the:
A) real interest rate was negative 
B) 10-year-bonds' nominal interest rate was less than the real interest rate 
C) real interest rate was zero 
D) real interest rate was positive 
E) None of these answers are correct.

Quizplus · Accepted Answer

The real interest rate is negative when the nominal interest rate is less than the inflation rate. In Figure 14.4, the nominal interest rate on 10-year bonds is about 4%, and the inflation rate is about 5%. Therefore, the real interest rate is negative.

The Following Figure Shows the Inflation Rate and Ten-Year Bond