Which of the following factors would be most likely to lead to an increase in nominal interest rates?

1. Households reduce their consumption and increase their savings.

2. A new technology like the Internet has just been introduced, and it increases investment opportunities.

3. There is a decrease in expected inflation.

4. The economy falls into a recession.

5. The Federal Reserve decides to try to stimulate the economy.

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.