Your roommate argues that he can think of no better situation than living in a deflationary economy, as prices of goods and services would continuously fall. You disagree and argue that during a deflation, people can be made worse off because
A) the value of the real interest rate will drop below the nominal interest rate.
B) borrowers will have to pay increasing amounts in real terms over time.
C) the purchasing power of people's incomes would increase.
D) the purchasing power of the currency would decrease.
B
You might also like to view...
The interest-rate effect
a. depends on the idea that increases in interest rates decrease the quantity of goods and services demanded. b. depends on the idea that increases in interest rates decrease the quantity of goods and services supplied. c. is responsible for the downward slope of the money-demand curve. d. is the least important reason, in the case of the United States, for the downward slope of the aggregate-demand curve.
Suppose that the current exchange rate between the dollar and peso is $1 equals 10 pesos. If a firm in Mexico wanted to purchase $100,000 worth of U.S. televisions, how many pesos must they exchange?
A) 10,000 pesos B) 100,000 pesos C) 1,000,000 pesos D) 11,000,000 pesos