The current nominal interest rate is 9 percent. If the expected inflation rate changes from 2 to 3 percent ( ceteris paribus ), it follows that the demand for loanable funds will

Question

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When expected inflation increases, borrowers are more willing to take loans at the current nominal rate, increasing the demand for loanable funds. Simultaneously, lenders require a higher nominal rate to compensate for the increased inflation, reducing the supply of loanable funds. This creates upward pressure on the nominal interest rate.

The Current Nominal Interest Rate Is 9 Percent