a. ? and b?

The relationship between nominal and real interest rates continues to hold when there is deflation rather than inflation, except that the overall change in prices is now negative. Assume that the desired real interest rate is 1.8%, the expected deflation rate is 0.8% (1.e. the inflation rate is -0.8%), and the actual deflation rate is 1.8% (i.e. the inflation rate is -1.8%). a. The nominal interest rate is b. The actual real interest rate is