AP Macroeconomics Question 257: Answer and Explanation

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Question: 257

12. If the inflation rate is expected to increase in the immediate future, then

  • A. consumers will begin saving more now.
  • B. the velocity of money will fall.
  • C. this will put upward pressure on the nominal interest rate.
  • D. this will put downward pressure on the real interest rate.
  • E. the international value of the dollar will rise.

Correct Answer: C


(C) Fisher's Hypothesis states that the nominal interest rate equals the real interest rate plus expected inflation.