If an Economy Experiences Deflation,the Real Interest Rate

question 114

Multiple Choice

If an economy experiences deflation,the real interest rate

• A)will be less than the nominal interest rate.
• B)will be negative when the nominal interest rate is positive.
• C)will be greater than the nominal interest rate.
• D)will be equal to the deflation rate,so long as the nominal interest rate is positive.

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Definitions:

Cost Method

An accounting approach where investments are recorded at their original purchase cost, without adjustment for changes in market value.

Goodwill

An intangible asset that arises when a company acquires another company for a price higher than the fair value of its net identifiable assets.

Equity Method

A method of accounting in which an investor recognizes its share of the profits and losses of an investee that it influences but does not control.

Acquisition Differential

The difference between the purchase price of an acquired company and the fair value of its identifiable net assets. This differential is often allocated to goodwill or adjusted against specific assets.