Question

Assume deflation is occurring in a nation; the implication(s) A. are that both real and nominal interest rates are positive. B. are that both real and nominal interest rates are negative. C. is that the nominal interest rate exceeds the real interest rate. D. is that the real rate of interest exceeds the nominal rate of interest. E. is that time preferences in the nation have fallen.

Answer 1

The correct answer and the letter d.

Step-by-step explanation:

The correct answer and the letter d. the real interest rate exceeds the nominal interest rate. The real interest rate is the return, in terms of purchasing power, of an application. It corresponds to the difference between the nominal interest rate and the change in purchasing power of the currency over the period. Thus, a negative variation in the purchasing power of the currency, ie a decrease in the price index, will lead to an increase in the real interest rate.