Why might maintaining an interest rate ceiling in an economy be a bad idea?
A)Instituting a nominal interest rate ceiling also effectively institutes a real interest rate ceiling.
B)If inflation rises and the real interest rate falls, this will stifle consumption and investment.
C)If deflation occurs and the real interest rate rises, it will discourage consumption and investment.
D)It becomes impossible to calculate the real interest rate.

Question

Quizplus · Accepted Answer

If deflation occurs and the real interest rate rises, it will discourage consumption and investment because borrowing becomes more expensive, leading to reduced economic activity.

Why Might Maintaining an Interest Rate Ceiling in an Economy