Suppose that in some year nominal interest rates are less than the rate of inflation.This means that:

A) money demand exceeds money supply.
B) real interest rates are negative.
C) real interest rates are positive and unusually high.
D) real interest rates exceed nominal interest rates.

When nominal interest rates are less than the rate of inflation, it means that the purchasing power of the money invested is decreasing. Real interest rates take inflation into account and are calculated by subtracting the rate of inflation from the nominal interest rate. If inflation is higher than the nominal interest rate, the real interest rate is negative. This implies that borrowers are effectively being paid to borrow money and savers are losing money by keeping it in low-yielding accounts. Therefore, option B is correct as real interest rates are negative in this situation.