Final answer:
The real interest rate can be negative if the rate of inflation is higher than the nominal interest rate. The nominal interest rate can also be negative in situations of deflation and expansionary monetary policy.
Step-by-step explanation:
The real interest rate can be negative under certain circumstances. The real interest rate is the nominal interest rate minus the rate of inflation. If the nominal interest rate is higher than the rate of inflation, the real interest rate will be positive. However, if the rate of inflation is higher than the nominal interest rate, the real interest rate can be negative.
On the other hand, the nominal interest rate can also be negative in some cases. This can happen when central banks use expansionary monetary policy to reduce the nominal interest rate close to zero, but the economy experiences deflation. As a result, the real interest rate, which takes into account inflation, can be negative.