During a deflationary period, the:
A)nominal interest rate is less than the real interest rate.
B)real interest rate is less than the nominal interest rate.
C)price level rises.
D)nominal interest rate does not change.

Question

Quizplus · Accepted Answer

During a deflationary period, the price level decreases, which increases the real value of money. This means that the real interest rate (which reflects the purchasing power of interest earnings) is higher than the nominal interest rate (the stated rate without adjusting for inflation). Deflation effectively increases the real burden of debt.

During a Deflationary Period, The