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How the real interest rate will change

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Question - The two-year interest rate is 13.2% and the expected annual inflation rate is 6.6%.

a. What is the expected real interest rate?

b-1. If the expected rate of inflation suddenly rises to 8.6%, what does Fisher's theory say about how the real interest rate will change?

b-2. If the expected rate of inflation suddenly rises to 8.6%, what will be the new nominal rate?

Reference no: EM132283983

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