If the inflation rate is smaller than the nominal interest rate, the real interest rate is
A) positive.
B) negative.
C) zero.
D) either positive or zero.

Question

Quizplus · Accepted Answer

The real interest rate is calculated by subtracting the inflation rate from the nominal interest rate. If the inflation rate is smaller than the nominal interest rate, then the real interest rate will be positive. This means that the purchasing power of the money invested will increase over time, as the nominal interest rate is earning more than the rate of inflation.

If the Inflation Rate Is Smaller Than the Nominal Interest