During a deflation, the nominal interest rate is ________ and the velocity of circulation ________.
A) low; decreases
B) low; increases
C) high; decreases
D) high; increases

Question

Quizplus · Accepted Answer

During a deflation, the nominal interest rate tends to be low because the central bank typically lowers rates to stimulate borrowing and spending. Additionally, the velocity of circulation decreases as people and businesses are more likely to hold onto their money, expecting that it will have more purchasing power in the future.

During a Deflation, the Nominal Interest Rate Is ________ and the Velocity