Multiple Choice
Suppose the interest rate is zero and the public expects the price level to fall by 2%. Which of the following statement is true?
A) The value of money falls by 2%.
B) Money becomes an interest earning asset; it earns a nominal interest rate of 2%.
C) Money becomes an interest earning asset; it earns a real interest rate of 2%.
D) Bonds and money will become perfect substitutes since both are non-interest earning assets.
Correct Answer:
Verified
Correct Answer:
Verified
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