In a period of deflation,when there is a declining price level,low nominal interest rates do not necessarily indicate that the cost of borrowing is ________ or that monetary policy is ________.
A)low; tight
B)low; easy
C)high; tight
D)high; easy

Question

Quizplus · Accepted Answer

In a period of deflation, low nominal interest rates indicate that the cost of borrowing is low and that monetary policy is generally easy. This is because the central bank is likely to decrease interest rates in order to stimulate borrowing and spending, and to counteract the deflationary pressures in the economy. Therefore, answer B is correct, as it correctly identifies that low nominal interest rates indicate that borrowing costs are low and that monetary policy is easy. Answers A, C, and D are incorrect because they incorrectly identify either the level of nominal interest rates or the stance of monetary policy in a period of deflation.

In a Period of Deflation,when There Is a Declining Price