When Deflation Occurs

question 252

Multiple Choice

When deflation occurs

• A)the real interest rate is greater than the nominal interest rate.
• B)the nominal interest rate is greater than the real interest rate.
• C)the nominal interest rate is equal to the real interest rate and inflation is negative.
• D)the nominal interest rate is equal to the real interest rate and inflation is positive.

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Definitions:

Capital Investment Evaluation Methods

Techniques used to assess the value and potential return of investments a business makes in long-term assets, including net present value, return on investment, and payback period analysis.

Average Rate of Return on Investment

A financial metric that compares the amount of profit expected or gained from an investment relative to its cost.

Net Present Value

A method used in capital budgeting to evaluate the profitability of an investment, calculated as the difference between the present value of cash inflows and the present value of cash outflows over a period of time.

Estimated Net Income

A projection of a company’s net income, considering potential revenues and expenses, for a future period.