People anticipate inflation will be 3 percent during the next several years. If this is true, when the real interest rate is 4 percent, the money interest rate will be
A) 1 percent.
B) 3 percent.
C) 4 percent.
D) 7 percent.

Question

Quizplus · Accepted Answer

The money interest rate is equal to the real interest rate plus the anticipated inflation rate. Therefore, the money interest rate would be 7 percent (4 percent real interest rate + 3 percent anticipated inflation rate).

People Anticipate Inflation Will Be 3 Percent During the Next