Mario Thinks That Nominal Interest Rates Will Increase or Decrease

question 36

Multiple Choice

Mario thinks that nominal interest rates will increase or decrease by the same amount that the expected inflation rate increases or decreases. Economists would say that Mario believes in:

• A) the money illusion.
• B) interest reform.
• C) the Fisher effect.
• D) the classical dichotomy.

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Definitions:

Capital

Wealth in the form of money or assets, invested in order to start a business or invest in order to generate more wealth.

Real GDP

Gross domestic product adjusted for changes in the price level, providing a more accurate picture of an economy's size and growth.

Consumption

the process by which goods and services are used up by individuals or groups, typically considered the end-use in economic production cycles.

Investment

The act of allocating resources, usually money, with the expectation of generating an income or profit.