Suppose That a Change in the Expected Inflation Rate Leads

question 3

Multiple Choice

Suppose that a change in the expected inflation rate leads supply and demand to adjust so that the expected real interest rate is unchanged at 3.0 percent.The tax rate is 30 percent.Initially, the expected inflation rate is 3.0 percent.If the expected inflation rate falls from 6 percent to 0 percent, the after-tax expected real interest rate

• A)rises by 1.8 percent.
• B)rises by 0.9 percent.
• C)falls by 0.9 percent.
• D)falls by 1.8 percent.

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Definitions:

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