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

Question

Quizplus · Accepted Answer

A change in the expected rate of inflation from 5 percent to 3 percent typically leads to a decrease in the nominal interest rate by the difference in the inflation rates, assuming other factors remain constant. This is because lenders and borrowers adjust the nominal interest rate they agree upon based on their expectations of inflation to maintain the desired real interest rate.

A Change in the Expected Rate of Inflation from 5