If the Real Rate of Interest Is 4%, Actual Inflation

question 31

Multiple Choice

If the real rate of interest is 4%, actual inflation for the last year was 5%, and expected inflation is 8%, the Fisher effect predicts what current level of nominal interest rates?

• A) 9%
• B) 8%
• C) 13%
• D) 12%

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Definitions:

National Governments

The central governing bodies of a nation that are responsible for creating and enforcing laws, policies, and regulations, and managing the country's affairs.

Devalue Currencies

The intentional decrease in the value of a country's currency compared to other currencies, typically conducted by the government or central bank to adjust the country's trade balance.

Foreign Investment

Capital investment made by one country into another, either by buying a company in the target country or by expanding operations of an existing business.

Revenue Tariff

A tax imposed on imported goods primarily for generating government revenue rather than protecting domestic industries.