If Expected Inflation Declines by 2%,what Should Happen to Nominal

question 30

Multiple Choice

If expected inflation declines by 2%,what should happen to nominal interest rates according to the Fisher effect?

• A) rise by 2%
• B) fall by 2%
• C) be cut in half
• D) double in size

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Definitions:

Marginal Benefit

Marginal benefit is the additional satisfaction or utility that a consumer receives from consuming one more unit of a good or service.

Social Cost

The total cost to society, including both private costs borne by the producer and external costs borne by others, of producing a good or service.

Perfectly Competitive

A market structure characterized by a large number of buyers and sellers, all selling identical products, with no single entity able to influence the market price.

Externalities

Costs or benefits that affect a party who did not choose to incur that cost or benefit, often leading to market failure if not corrected by government intervention.