Assume the Long-Term Real Interest Rate Is 4% and the Expected

Multiple Choice

Assume the long-term real interest rate is 4% and the expected inflation rate is 5%.If the Bank of Canada decreases the money supply and as a result,the expected inflation rate decreases to 2%,then based on the Fisher effect,the long-term real interest rate will ________ and the long-term nominal interest rate will ________.

A) remain at 4%; rise to 7%
B) remain at 4%; fall to 6%
C) fall to 1%; fall to 6%
D) fall to 6%; remain at -1%