Assume That Interest Rates Have Been 7% and the Inflation

question 98

Multiple Choice

Assume that interest rates have been 7% and the inflation rate has been 3% for the past three years. Changes in the Federal Reserve's policies are causing the expected inflation rate to increase to 4.5%. If the Fisher effect holds, the nominal rate will _____, and the real interest rate will:

• A) rise to 8.5%; remain 4%.
• B) remain at 7%; drop to 2.5%.
• C) fall to 5.5%; drop to 3%.
• D) rise to 8.5%; remain 3%.

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Definitions:

Glial Cells

Specialized cells in the nervous system that support, protect, and nourish neurons, playing a crucial role in maintaining homeostasis in the brain.

Peripheral Nervous System

The part of the nervous system that consists of the nerves and ganglia outside of the brain and spinal cord, responsible for transmitting information to and from the central nervous system.

Autonomic Nervous System

The part of the nervous system that controls involuntary bodily functions such as heart rate, digestion, and respiratory rate.

Somatic Nervous System

Part of the peripheral nervous system that oversees voluntary movements of the body by transmitting sensory and motor signals to and from the central nervous system.