During an Extended Inflationary Period, the Money Rate of Interest

question 9

Multiple Choice

During an extended inflationary period, the money rate of interest will usually be

• A) lower than the real rate of interest.
• B) equal to the real rate of interest.
• C) greater than the real rate of interest.
• D) inversely related to changes in the inflation rate.

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Definitions:

Nominal Return

The amount of profit or loss realized from an investment without adjusting for factors like inflation.

Expected Inflation

The rate at which the general level of prices for goods and services is rising, and subsequently, purchasing power is falling, as anticipated by consumers, investors, and economists.

Real Return

The rate of return on an investment after adjusting for inflation.

Nominal Rate

Typically refers to the interest rate agreed upon in the financing agreement before any adjustment for inflation.