The nominal rate of interest tends to rise during time of inflation because

A) lenders require a higher rate in order to loan out money.
B) borrowers are willing to pay a higher rate to obtain loans.
C) loans are taken in "cheap" dollars but paid back in dollars of greater purchasing power.
D) lenders require a higher rate in order to loan out money AND borrowers are willing to pay a higher rate to obtain loans.

Nominal Rate

The interest rate before adjustments for inflation. It is the rate that is quoted by banks and other financial institutions for savings accounts, loans, and mortgages.

Inflation

A general increase in prices across an economy, leading to a decrease in the purchasing power of money.

Purchasing Power

The purchasing power of a currency, measured by the quantity of goods or services a single unit can acquire.