If a country had deflation,

Question

Quizplus · Accepted Answer

In a period of deflation, the general price level is declining, which means the purchasing power of money is increasing. As a result, lenders would require a lower nominal interest rate to lend money because they can achieve a higher real interest rate. Borrowers, on the other hand, would be willing to pay a higher nominal interest rate to borrow money because they will benefit from the increased purchasing power of money. Therefore, the real interest rate would be greater than the nominal interest rate.

If a Country Had Deflation