Suppose That the Nominal Interest Rate Is 5 Percent and the Expected

Multiple Choice

Suppose that the nominal interest rate is 5 percent and the expected inflation rate is 3 percent. What happens with the value of savings?

A) The dollar value of savings increases by 8 percent and the value of savings measured in goods is expected to increase by 3 percent.
B) The dollar value of savings increases by 8 percent and the value of savings measured in goods is expected to increase by 5 percent.
C) The dollar value of savings increases by 5 percent and the value of savings in goods is expected to increase by 2 percent.
D) The dollar value of savings increases by 5 percent and the value of savings in goods is expected to increase by 3 percent.
E) The dollar value of savings increases by 2 percent and the value of savings measured in goods is expected to increase by 5 percent.