Refer to the following figure when answering the following questions.
Figure 14.3: AS/AD Model

-Consider Figure 14.3. 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 is correct.

Question

Refer to the following figure when answering the following questions.
Figure 14.3: AS/AD Model

-Consider Figure 14.3. 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 is correct.

Quizplus · Accepted Answer

The real interest rate is calculated by adjusting the nominal interest rate for inflation. When inflation is higher than the nominal interest rate, the real interest rate becomes negative. Given the context of 2008, where many economies experienced high inflation rates, particularly due to the financial crisis, it's plausible that for most of that year, the real interest rates were indeed negative.

Refer to the Following Figure When Answering the Following Questions