A change in the expected rate of inflation from 3 percent to 5 percent will

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Quizplus · Accepted Answer

An increase in the expected rate of inflation typically leads to an increase in the nominal interest rate. This is because lenders demand higher nominal rates to compensate for the decreased purchasing power of money that is expected to occur due to inflation. The Fisher equation illustrates this relationship, indicating that the nominal interest rate adjusts to reflect changes in expected inflation, keeping the real interest rate relatively stable.

A Change in the Expected Rate of Inflation from 3