If Expected Inflation Is Constant and the Nominal Interest Rate

Multiple Choice

If expected inflation is constant and the nominal interest rate increased 2 percentage points, what would happen to the real interest rate?

A) It would increase 2 percentage points.
B) It would increase, but by fewer than 2 percentage points.
C) It would decrease, but by fewer than 2 percentage points.
D) It would decrease by 2 percentage points.