Question
Asked Feb 3, 2019
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"When there is low inflation, it will be backed by low interest and an appreciated currency and not depreciated currency." Isn't this statement wrong as inflation and interest rates have an inverse relationship.

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Expert Answer

Step 1

When the inflation is low, the interest rates will be low, so that people borrow and spend more and this leads to inflation again. What we need to understand here is that the interest rate is of two types. Nominal interest rate and real interest rate.

Step 2

When inflation is high, the nominal interest rate is high and the real interest rate is low. Which definitely talks about the inverse relationship that yo...

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