Which of the following statements is correct? rev: 06_06_2018 Multiple Choice For a given real interest rate, the nominal interest must decrease if expected inflation increases. For a given nominal interest rate, the real interest will decrease if inflation decreases. For a given expected inflation rate, the nominal interest must increase if real interest decreases. For a given real interest rate, the nominal interest must increase if expected inflation increases.

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26-03-2020
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Which of the following statements is correct? rev: 06_06_2018 Multiple Choice For a given real interest rate, the nominal interest must decrease if expected inflation increases. For a given nominal interest rate, the real interest will decrease if inflation decreases. For a given expected inflation rate, the nominal interest must increase if real interest decreases. For a given real interest rate, the nominal interest must increase if expected inflation increases.

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tallinn tallinn · Answer 1 · 2020-03-30T11:54:35+02:00

Answer:

For a given real interest rate, the nominal interest must increase if expected inflation increases.

Explanation:

As per Fisher, The real interest rate is the rate of interest which is arrived at after considering the effect of inflation.

Nominal rate of interest on the other hand is rate of interest which does not consider the effect of inflation.

Real interest rate is expressed as,

= Nominal rate of interest - Inflation

Nominal rate of interest depict the rate of return individuals earn from their deposited money. Thus, if a customer earns 8% interest on his/her deposits, this return of 8% would represent his return without considering the purchasing power which is depicted by real rate of interest.

Thus, at a given rate of real interest, if expected inflation increases, this increase should be corresponded by a proportionate increase in the nominal rate of interest such as bank rate of interest, so as the real rate of interest remains the same and purchasing power of an individual remains at the same level as before.

deebikamadhivanan deebikamadhivanan · Answer 2 · 2021-11-18T06:56:56+01:00

The inflation and interest rate change is a percentage in a particular period's price index relative to a prior period's price index. It is usually measured annually or on a year-to-year basis.

The correct statement is being explained below:

According to Fisher, the real rate is the interest rate of interest calculated after taking inflation into account.

The nominal rate of interest, on the other hand, is the rate of interest that is calculated without taking inflation into account.

[tex]\text{Real interest rate = Nominal rate of interest - Inflation}[/tex]

The nominal rate of interest (NRI) depicts the rate of return (ROR) on money deposited by individuals.

Thus, if a customer earns 8% interest on his or her deposits, this 8% return represents his or her return without taking into account the purchasing power represented by the real rate of interest.

Thus, if predicted inflation rises at a certain rate of real interest, this rise should be matched by a comparable rise in the NRI, such as the bank rate of interest, so that the real rate of interest remains constant and an individual's purchasing power remains constant.

For more information regarding the inflation rate, refer to the link:

https://brainly.com/question/3473705