What Would You Expect to Be the Relationship Between Real

question 3

Multiple Choice

What would you expect to be the relationship between real rates of interest in Japan and the United States if inflation is expected to be 3% in Japan and 6% in the United States?

• A) Japan's real interest rate should be 3% higher than in the United States.
• B) Japan's real interest rate should be 3% lower than in the United States.
• C) Japan's real interest rate should be half as high as in the United States.
• D) Real interest rates should be equal in both countries.