Empirical Evidence Shows That the Nominal Interest Rate Typically Rises

question 251

Multiple Choice

Empirical evidence shows that the nominal interest rate typically rises at the same time the inflation rate increases. What does this suggest?

• A) The real rate of interest is zero.
• B) Increases in the current inflation rate lead borrowers and lenders to expect that inflation in the future will be higher than previously thought.
• C) Interest rate changes are the main component of the CPI.
• D) Interest rate changes are the main component of the GDP deflator.

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