Assume the Long-Term Real Interest Rate Is 4% and the Expected

question 86

Multiple Choice

Assume the long-term real interest rate is 4% and the expected inflation rate is 5%.If the Bank of Canada decreases the money supply and as a result,the expected inflation rate decreases to 2%,then based on the Fisher effect,the long-term real interest rate will ________ and the long-term nominal interest rate will ________.

• A) remain at 4%; rise to 7%
• B) remain at 4%; fall to 6%
• C) fall to 1%; fall to 6%
• D) fall to 6%; remain at -1%

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Definitions:

Locus of Control

A psychological concept that refers to individuals' beliefs about the extent to which they have control over the events that affect their lives.

Social Settings

The physical and social environments in which people live or in which something happens or develops.

Interdependence

A mutual reliance among entities, where the actions, products, or services of one depend on or influence those of another.

Judgement

The ability to make considered decisions or come to sensible conclusions.