A country experiences a rise in inflation while its nominal interest rates remain unchanged. How would you classify the resulting impact on real interest rates and subsequent consumer behavior?

When inflation rises but nominal interest rates stay the same, the real interest rate actually decreases. This happens because real interest rates are calculated by subtracting inflation from nominal interest rates. For example, if the nominal interest rate is 5% and inflation rises to 3%, the real interest rate would now be only 2%. With lower real interest rates, consumers may feel encouraged to borrow money because the cost of borrowing is effectively cheaper, leading them to spend more on things like homes or cars. However, they might also be cautious because rising prices can make everyday expenses more challenging, influencing their overall spending habits.