Question

Joyce's investments earn 5% nominal annual return right now while the inflation rate is at 1%. If inflation increases to 5%, it is likely that the nominal rate will _____.

Answer 1

The coerrect answer is B. The interest will decrease, this is because to attain actual interest you subtract the inflation rate from the nominal interest, therefore because the inflation rate increased, the actual interest decreased.

Answer 2

So if each nominal is 5 and the inflation 1 so if you have 5  inflation you will have 25 nominal