If inflation had long been 4 and was therefore expected to continue, then it unexpectedly increased to 7 inflation:
a. the real interest rate on loans issued just before the change occurred would decrease by three percentage points.
b. the real interest rate on loans issued just before the change occurred would increase by three percentage points.
c. the real interest rate on loans issued just before the change occurred would not change.
d. none of the above.
Question 2
The nominal interest rate equals:
a. the real interest rate minus the inflation rate.
b. the inflation rate minus the real interest rate.
c. the real interest rate plus the inflation rate.
d. none of the above.
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