An increase in the expected rate of inflation will:

A. lower the demand for real balances because the real interest rate will rise.
B. lower demand for real balances because the nominal interest rate will rise.
C. increase the demand for real balances because the real interest rate will fall.
D. increase the demand for real balances because the nominal interest rate will rise.

Ans: B. lower demand for real balances because the nominal interest rate will rise.

Economics

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