If a Country Had Deflation

question 97

Multiple Choice

If a country had deflation,

• A)the nominal interest rate would be greater than the real interest rate.
• B)the real interest rate would be greater than the nominal interest rate.
• C)the real interest rate would equal the nominal interest rate.
• D)None of the above is necessarily correct.

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Definitions:

Interest Revenue

Income earned by an entity through investments in interest-bearing financial instruments or accounts.

Debt Investments

Financial assets purchased with the expectation that the loan made to the issuer (such as bonds) will be paid back with interest.

Available-For-Sale Security

A financial asset that is purchased with the intent of selling before its maturity date but not classified as actively traded or held to maturity.

Realized Gain

The profit made from the sale of an asset, which becomes evident upon completion of the transaction.