For a given nominal interest rate, an unexpectedly low inflation rate ______ the real interest rate.

a. increases
b. decreases
c. has no impact on
d. may either increase or decrease
e. is subtracted from

real interest rate is nominal rate less inflation. So... "raises"

The correct answer is b. decreases.

When the inflation rate is unexpectedly low, it means that prices are increasing at a slower rate than anticipated. The real interest rate is calculated by subtracting the inflation rate from the nominal interest rate.

So, if inflation is lower than expected, the difference between the nominal interest rate and the inflation rate will be smaller, which leads to a decrease in the real interest rate.

To determine how an unexpectedly low inflation rate affects the real interest rate, we need to understand the relationship between these two variables.

The real interest rate is calculated by subtracting the inflation rate from the nominal interest rate. It represents the purchasing power of money after accounting for inflation.

If the inflation rate is unexpectedly low, it means that prices are rising at a slower rate than anticipated. This has an impact on the calculation of the real interest rate.

When inflation is lower than expected, it effectively decreases the inflation component in the calculation of the real interest rate. As a result, the real interest rate increases.

Therefore, the correct answer is:

a. increases