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

Question

Quizplus · Accepted Answer

In a period of deflation, nominal interest rates tend to be low, but this does not necessarily mean that the cost of borrowing is also low, as the real interest rate (adjusted for inflation) could actually be high. Additionally, monetary policy may not be easy even with low nominal interest rates, as the central bank may struggle to stimulate inflation and economic growth in a deflationary period.

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