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

Question

Quizplus · Accepted Answer

During a deflationary period, the price level decreases, which means the real interest rate (which adjusts the nominal rate for inflation) is higher than the nominal interest rate because the purchasing power of money increases.

During a Deflationary Period