O B. Deflation was good for farmers because the value of their debt stayed the s

Question

O B. Deflation was good for farmers because the value of their debt stayed the same while the prion of their products rooe . Deflafon was good for farmers because the value of their debt stayed the same while the price of their products fol. O D. Defiason was bad for farmers because the value of their debt stayed the same while the price of their products fell. Does your answer depend on whether the dedine in the price level was expected or unexpected? O A. The answer does not depend on whether deflation was expected. If defation was expected, the interest rate may have stayed suficenty low to compensate O B The answer depends on whether donation was opected. It deflaten was expected, the nterest rate may have stayed sufficienty low to compensate. O C. The answer depends on whother defation was expacted. If deflation was expected, the intorest rate may have stayed suficenty high to compensate. O D. There is no correct answer. Click to select your answer 18

Explanation / Answer

1) Option D. Because the price of their products fell, they had to pay a higher real amount of debt than otherwise if there was no deflation.

2) Option B. If there is a deflation, then real interest rate is too high. Then nominal interest rate could have been set too low to reflect this change.

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