1.) The severity of the Great Depression may be partly explained by an increase in expected...
1.) The severity of the Great Depression may be partly explained by an increase in expected
| a. |
inflation, which raised nominal interest rates above real interest rates. |
|
| b. |
inflation, which raised real interest rates above nominal interest rates. |
|
| c. |
deflation, which raised nominal interest rates above real interest rates. |
|
| d. |
deflation, which raised real interest rates above nominal interest rates. |
Homework Answers
Ans. d) deflation, which raised the real interest rate above the nominal interest rates.
The increase of the real interest caused the real value of the money to decrease and hence a lower nominal interest rate was not an appropriate indicator of the wealth decrease. Thus, deflation was an important factor to explain the severity of the Great Depression.
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