If a Country Had Deflation of 3 Percent While the Nominal

question 6

Multiple Choice

If a country had deflation of 3 percent while the nominal interest rate increased by 1 percentage point, how would the real interest rate change?

• A) The real interest rate would decrease by 2 percentage point.
• B) The real interest rate would increase by 2 percentage point.
• C) The real interest rate would decrease by 4 percentage points.
• D) The real interest rate would increase by 4 percentage points.

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