Equilibrium in the loanable funds market is initially present at a stable price level (zero inflation) and a nominal (and real) interest rate of 4 percent. If a shift to expansionary monetary policy eventually leads to actual and expected inflation of 6 percent,

a. both the nominal and real interest rates will rise to 10 percent.
b. the nominal interest rate will rise to 10 percent, but the real interest rate will remain at 4 percent.
c. the real interest rate will rise to 10 percent, but the nominal interest rate will remain at 4 percent.
d. both the real and nominal interest rates will remain at 4 percent.

B