If the rate of inflation is zero prices are expected to rema

If the rate of inflation is zero, prices are expected to remain stable, and the nominal rate of interest is 5 percent, then the 1) real rate of interest is equal to the nominal rate. 2) nominal rate is greater than the real rate of interest. 3) investment demand schedule will shift upward. 4) real rate of interest is less than the nominal rate.

Solution

Answer is 1. Real interest rate is equal to nominal rate.

Explanation:

The real rate of interest might be different from nominal in case of change of price level and there is a inflation. However, there is no existence of both these factors, both the rates are equal.