AP Macroeconomics Question 257: Answer and Explanation
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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.