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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Definitions:

Particular Frame

A specific perspective or point of view adopted in evaluating or analyzing a situation, which can influence perceptions and outcomes.

Secondary Concerns

Issues or considerations that are not of primary importance but may still influence outcomes or decisions.

Primary Issues

The main or most important topics or problems to be discussed or dealt with in a negotiation or discussion.

Cognitive Bias

A systematic error in thinking that affects decisions and judgments, resulting from one's own personal experiences, beliefs, or preferences.