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A country's central bank aims to stimulate investment by lowering the real cost of borrowing. The nominal interest rate is currently set at 4%, and the public's expected rate of inflation is 1%. If inflation expectations suddenly rise to 3% while the nominal interest rate remains unchanged, what is the most likely impact on the real cost of borrowing?
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A country's central bank aims to stimulate investment by lowering the real cost of borrowing. The nominal interest rate is currently set at 4%, and the public's expected rate of inflation is 1%. If inflation expectations suddenly rise to 3% while the nominal interest rate remains unchanged, what is the most likely impact on the real cost of borrowing?
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