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Hello students, here is a question.
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Which of the following factors would be likely to lead to the increase in nominal interest rate? so, we have four options given here.
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The first is federal reserve takes a step to stimulate the economy and their actions have no immediate effect on the level of inflation.
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The second is, household increases their consumption and reduces the savings.
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Third is, there is a decline in maturity of a risk premium.
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And the fourth is, there is a decrease in expected inflation.
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Fifth is, the economic falls into a recession which leads to a decline in investment opportunities.
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So, let us discuss the answer for this.
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So, if the federal reserve takes up a step to stimulate the economy, it usually involves the lower interest rate which would not lead to increase in the nominal interest rate.
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When it comes to option b, it holds an increase in the contribution of reduced their savings.
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A demand of loan may increases lead to higher nominal rates...