In 2006 the Inflation Rate Is 1 Percent and Wally

Multiple Choice

In 2006 the inflation rate is 1 percent and Wally is willing to lend Barbara $100,000 at a 6 percent interest rate. In 2007, the inflation rate rises to 3 percent. As a result

A) Wally and Barbara will agree to a real interest rate of 9 percent.
B) Wally and Barbara will agree to a nominal interest rate of 5 percent.
C) Wally and Barbara will agree to a nominal interest rate of 8 percent.
D) Wally and Barbara will agree to a nominal interest rate of 9 percent.