Question

Based on your understanding of the determinants of interest rates, if everything else remains the same, which of the following will be true? Higher inflation expectations increase the nominal interest rate demanded by investors. The yield on U.S. Treasury securities always remains static.

Answer 1

Higher inflation expectations increase the nominal interest rate demanded by investors

Step-by-step explanation:

In the case when the rate of interest measures when everything remains the same so if there is high inflation so it would be expected that it also rise the nominal rate of interest that demanded by investors as the inflation would be the value that ascend over a time frame

Hence, the same is to be considered

Therefore the first option is correct