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:

Reuptake

The process by which neurotransmitters are taken back into the synaptic vesicles of a neuron after being released, stopping their action on neighboring neurons.

Dopamine

A neurotransmitter involved in many functions, including mood regulation, reward-motivated behavior, and control of movement.

Norepinephrine

A neurotransmitter and hormone involved in the body's fight or flight response, regulating heart rate, blood pressure, and blood sugar among other physiological functions.

Stimulant

A substance that increases physiological or nervous activity in the body, often enhancing alertness and energy.