Zero Nominal Interest Rates

A zero nominal interest rate happens when the interest rates match the inflation rates. So for an instance, if the interest rates are 4% then the inflation rates are also 4%. Characteristically nominal interest rates are positive; therefore people get some incentives to lend money. Central banks tend to lower nominal interest rates during a recession, so as to spur investment in land, machinery, factories, etc. they can start to approach the level of inflation if they cut interest rates too quickly. When interest rates are cut inflation will often rise, because these cuts have a simulative effect on the economy.