Question

Given a fixed nominal interest rate on a loan, unanticipated deflation:

a. ​decreases the burden of paying off the loan.

b. ​increases the burden of paying off the loan.

c. ​does not alter the burden of paying off the loan.

d. has an indeterminate effect on the burden of paying off the loan.

Answer 1

Deflation means that your money has more buying power, thus it decreases the burden of paying off your loan because (in theory) you would have more money available to pay your loan since other prices have gone down.