Just suppose . . .
Suppose that the rate of interest is low, say, 1%. Suppose further that the rate of inflation is negative, say, -3%. A negative rate of inflation signifies a deflation, of course. Then what would be the real interest rate?
a) 4%
b) 2%
c) -2%
d) -4%
The answer is (a) or 4%. Use the Fisher effect to answer this question.