True or False?
Recall that the realized real interest rate is the nominal interest rate minus the actual rate of inflation, while the contracted real interest rate is the nominal interest rate minus the expected rate of inflation. If the actual rate of inflation is above the expected rate, the realized rate of interest will be below the contracted real rate. This is what happened in the countries whose inflation and interest rate experience we have been examining in this lesson. For example, peak inflation rates occurred in the U.S. in the early-1970s and early-1980s and troughs in the realized real interest rate on long-term bonds occurred in the same years. And the fall in actual inflation rates later in the 1980s were associated with a sharp increase in the realized real interest rate.