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.

Question

Quizplus · Accepted Answer

During a deflationary period, the price level decreases, which increases the purchasing power of money. This means that the real interest rate (which accounts for inflation) is higher than the nominal interest rate (which does not account for inflation), as the real value of money lent or saved increases more than expected due to falling prices.

During a Deflationary Period