Answer:
The answers is: 3. A new technology like the Internet has just been introduced, and it increases investment opportunities.
Explanation:
Given there is higher demand for investment opportunities, borrowers in the economy will compete for funding while there is no change in the supply of funding, moreover, inflation rate has been constant which will finally lead to the increase in nominal interest rates.
1. Households reduce their consumption and increase their savings is not correct because higher saving will decrease interest rate as there is higher supply of funding.
2. There is a decrease in expected inflation is not correct as nominal interest rate is most likely to go down to keep real interest rate constant.
4. The economy falls into a recession is not correct as the situation will stimulate more saving and less consumption, less investment. Moreover, the Central Bank may also implement loose monetary policy which will decrease Nominal Interest rate.
5. The Federal Reserve decides to try to stimulate the economy is not correct as Federal Reserve will inject money into the economy, subsequently, nominal interest rate will go down.
There are a lot of factors that can lead to an increase in nominal interest. The factor that would be most likely to lead to an increase in nominal interest rates is that a new technology like the Internet has just been introduced, and it increases investment opportunities.
The nominal interest rate is simply known as the rate of interest before adjusting for inflation.
The rise in the price level shows that that the currency in a given economy is said to be losing purchasing power.
If the interest rates are rising, both businesses and consumers will cut back on spending.
An increase in the price level such as inflation will lead to an increase in average interest rates in an economy.
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