One Explanation for the Impact of Expected Price Changes on the Level

question 53

Multiple Choice

One explanation for the impact of expected price changes on the level of output is that an increase in expected deflation ______ the nominal interest rate and ______ the real interest rate, so that investment spending declines.

• A) lowers; raises
• B) raises; lowers
• C) raises; raises
• D) lowers; lowers

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