Question
Inflation in the economy generally leads to which of the following:
Select the correct answer using the code given below:
- Depreciation of currency
- Appreciation of currency
- Increase in real interest rate
- Increase in nominal interest rate
Select the correct answer using the code given below:
Answer: Option B
Answer: (b)
If there is inflation in the economy it leads to a loss in the value of currency i.e. currency depreciates.
Nominal interest rate (deposit rate) = Inflation + real interest rate
When inflation increases banks increase the nominal interest rate and generally real interest rate remains the same.
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Answer: (b)
If there is inflation in the economy it leads to a loss in the value of currency i.e. currency depreciates.
Nominal interest rate (deposit rate) = Inflation + real interest rate
When inflation increases banks increase the nominal interest rate and generally real interest rate remains the same.
Was this answer helpful ?
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