Question

As long as prices are rising over time, then a. the real interest rate is positive. b. the nominal interest rate is a better indicator than the real interest rate of how fast the purchasing power of your bank account is changing over time. c. the real interest rate exceeds the nominal interest rate. d. the nominal interest rate exceeds the real interest rate.

Answer 1

As long as prices are rising over time, the nominal interest rate exceeds the real interest rate.

What occurs when the nominal interest rate pass the real interest rate?

Note that Real interest rates can have a negative value , but nominal interest rates cannot have it.

Real interest rates are said to be  negative when the effect of inflation is said to be higher when compared to the nominal interest rate. Nominal interest rates are not always and will not be negative because when banks charged a negative nominal interest rate, they would be giving a person to borrow money from them.

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