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:

Savings And Loan

A financial institution that specializes in accepting savings deposits and making mortgage and other loans.

FDIC

The Federal Deposit Insurance Corporation, a United States government agency that provides deposit insurance to depositors in US banks.

Speculative

Actions based on conjecture rather than knowledge, often in the context of investment, involving risks with the hope of substantial gains.

Interest Rate

The rate, represented as a fraction of the total loan, charged by a credit provider to a loan recipient for borrowing funds or assets.