the real interest rate is 2% and the inflation rate is expected to increase 3%. according to the fisher effect, what changes to the real interest rate, nominal interest rate, and inflation rate can we expect?

Respuesta :

a) 3%. b) The number of grams of gold is 5.4 x 10^6 grams. b) Real interest rates decline as inflation rate, unless nominal interest rates also rise at a similar rate.

The rate of annual retail price inflation in India decreased to 5.88% in November 2022, the lowest level since December of the previous year, much below market expectations of 6.4% and down from 6.77% in October. Problems with the supply chain, stable demand, and energy instability can all contribute to high inflation. To counteract inflation, the Federal Reserve increased interest rates. To avoid the damaging effects of inflation, investors must think outside the box. One of the main groups of workers who lose out from greater inflation is the fixed-wage group. Unlike salespeople, who make a fluctuating income, fixed-rate employees' salaries are often not tied to an inflation index. According to the Fisher Effect, the real interest rate is equal to the nominal interest rate less the anticipated inflation rate.

If the yield on the bonds you own is 6% and the inflation rate is 3%, the real yield will be 3% rather than 6%. This is due to the fact that the 6% interest rate is reduced by 3% to reflect the unfavorable ability of inflation to destroy value (6% - 3% = 3%).

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