Inflation in the economy generally leads to which of the following:
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:
Options:
A . (ii) & (iii) only
B . (i) & (iv) only
C . (i) & (iii) only
D . (i), (iii) & (iv) only
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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