Asked by Harish Ravalla on Jun 23, 2024
Verified
If the nominal interest rate is 5 percent and there is no inflation,_____.
A) the real interest rate exceeds 5 percent
B) the real interest rate is less than 5 percent
C) the real interest rate is 5 percent
D) there is not enough information to determine the real interest rate
E) the real interest rate is zero
Nominal Interest Rate
The interest rate before adjustments for inflation; the rate quoted by financial institutions.
Real Interest Rate
The interest rate that has been adjusted to remove the effects of inflation, reflecting the real cost of funds to the borrower and the real yield to the lender.
Inflation
The rate of increase in the general price level for goods and services, leading to a decline in buying power.
- Acquire knowledge on the determination of real and nominal interest rates and their association with inflation rates.
Verified Answer
JD
Jacob DelagarzaJun 24, 2024
Final Answer :
C
Explanation :
If there is no inflation, there is no difference between the nominal interest rate and the real interest rate. Therefore, the real interest rate must also be 5 percent.
Learning Objectives
- Acquire knowledge on the determination of real and nominal interest rates and their association with inflation rates.