Suppose That the Nominal Interest Rate Is 7 Percent and the Expected

Multiple Choice

Suppose that the nominal interest rate is 7 percent and the expected inflation rate is 3 percent. What happens with the value of savings?

A) The dollar value of savings increases by 11 percent, and the value of savings measured in goods is expected to increase by 3 percent.
B) The dollar value of savings increases by 11 percent, and the value of savings measured in goods is expected to increase by 4 percent.
C) The dollar value of savings increases by 7 percent, and the value of savings measured in goods is expected to increase by 4 percent.
D) The dollar value of savings increases by 7 percent, and the value of savings measured in goods is expected to increase by 3 percent.