Question

Select the correct answer from each drop-down menu.

Answer 1

The  nominal return  on an investment doesn't consider the effect of inflation on purchasing power. If the inflation rate is positive, then the real return will be  less than   the nominal return on an investment.

Positive inflation eats away at the value of the dollar. For instance, an item worth $100 one year could be worth $105 the next year if inflation was 5%. Therefore, you've lost 5 dollars worth of purchasing power (since you need 5 extra dollars to get the same item).

The formula is

real return = nominal return - inflation

If inflation is positive, then the real return is smaller than the nominal return.

If inflation is negative (ie we have deflation), then the real return is larger than the nominal return.

Answer 2

Answer:

real return

greater than

Step-by-step explanation:

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