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20 Apr 2019

Suppose the real interest rate is 2% and the nominal interest rate is 5%. What is the expected inflation rate?

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Related questions

Which of the following statements is TRUE?
 
  If the nominal interest rate is 5% and the inflation rate is 2.5%, the real interest rate is 2.5%.
  If the nominal interest rate is 5% and the inflation rate is 4%, the real interest rate is 9%.
  If the real interest rate is 3% and the inflation interest rate is 5%, the nominal interest rate is 2%.
  If the real interest rate is 3% and the nominal interest rate is 5%, the inflation rate is 8%.

Suppose Canada and the U.S., on a fixed exchange rate, have real growth rates of 2%, and a risk premium of 1% (Canada is riskier). Canada's real interest rate is 4% and the U.S. nominal interest rate is 8%. what are Canada's inflation and nominal interest rate? please show your calculations. the answer for inflation is 5% and the nominal interest rate is 9%

3. Suppose that a typical taxpayer has a marginal personal income tax rate of 20 percent. The nominal interest rate is 4 percent, and the expected inflation rate is 1 percent.

a. What is the real after-tax rate of interest?

b. Suppose that the expected inflation rate increases by 2 percentage points to 3 percent, and the nominal interest rate increases by the same amount. What happens to the real aftertax rate of return?


c. If the inflation rate increases as in part b, by how much would the nominal interest rate have to increase to keep the real after-tax interest rate at the same level as in part a? Can you generalize your answer using an algebraic formula?

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