If Interest Rate Parity Holds and the Annual German Nominal

If interest rate parity holds and the annual German nominal interest rate is 3 percent and the U.S. annual nominal rate is 5 percent and real interest rates are 2 percent in both countries,then inflation in Germany is about ________ than in the United States.

A) 1 percent higher
B) 2 percent higher
C) 1 percent lower
D) 4 percent lower
E) 2 percent lower

Correct Answer:

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