Currently, the general price level is 150.00 and people expect it to increase to 156.00 next year. Therefore, the expected rate of inflation equals 4.00 percent. Moreover, there is a one-year bond that promises to pay $107,000.00 next year and is selling for $100,000.00 in the bond market today. So, the nominal interest rate equals 7.00 percent, and the ex-ante real interest rate on this bond equals 3.00 percent. Because of some news, people revise their expectations of the future price level to 159.00. According to the Fisher Effect, the price of the bond today will change to _____ dollars.
Currently, the general price level is 150.00 and people expect it to increase to 156.00 next year. Therefore, the expected rate of inflation equals 4.00 percent. Moreover, there is a one-year bond that promises to pay $107,000.00 next year and is selling for $100,000.00 in the bond market today. So, the nominal interest rate equals 7.00 percent, and the ex-ante real interest rate on this bond equals 3.00 percent. Because of some news, people revise their expectations of the future price level to 159.00. According to the Fisher Effect, the price of the bond today will change to _____ dollars.
Economics: Private and Public Choice (MindTap Course List)
16th Edition
ISBN:9781305506725
Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Chapter9: An Introduction To Basic Macroeconomic Markets
Section: Chapter Questions
Problem 9CQ
Related questions
Question
Currently, the general price level is 150.00 and people expect it to increase to 156.00 next year. Therefore, the expected rate of inflation equals 4.00 percent. Moreover, there is a one-year bond that promises to pay $107,000.00 next year and is selling for $100,000.00 in the bond market today. So, the nominal interest rate equals 7.00 percent, and the ex-ante real interest rate on this bond equals 3.00 percent. Because of some news, people revise their expectations of the future price level to 159.00. According to the Fisher Effect, the price of the bond today will change to _____ dollars.
Expert Solution
![](/static/compass_v2/shared-icons/check-mark.png)
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
![Blurred answer](/static/compass_v2/solution-images/blurred-answer.jpg)
Recommended textbooks for you
![Economics: Private and Public Choice (MindTap Cou…](https://www.bartleby.com/isbn_cover_images/9781305506725/9781305506725_smallCoverImage.gif)
Economics: Private and Public Choice (MindTap Cou…
Economics
ISBN:
9781305506725
Author:
James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:
Cengage Learning
![Macroeconomics: Private and Public Choice (MindTa…](https://www.bartleby.com/isbn_cover_images/9781305506756/9781305506756_smallCoverImage.gif)
Macroeconomics: Private and Public Choice (MindTa…
Economics
ISBN:
9781305506756
Author:
James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:
Cengage Learning
![Survey Of Economics](https://www.bartleby.com/isbn_cover_images/9781337111522/9781337111522_smallCoverImage.gif)
![Economics: Private and Public Choice (MindTap Cou…](https://www.bartleby.com/isbn_cover_images/9781305506725/9781305506725_smallCoverImage.gif)
Economics: Private and Public Choice (MindTap Cou…
Economics
ISBN:
9781305506725
Author:
James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:
Cengage Learning
![Macroeconomics: Private and Public Choice (MindTa…](https://www.bartleby.com/isbn_cover_images/9781305506756/9781305506756_smallCoverImage.gif)
Macroeconomics: Private and Public Choice (MindTa…
Economics
ISBN:
9781305506756
Author:
James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:
Cengage Learning
![Survey Of Economics](https://www.bartleby.com/isbn_cover_images/9781337111522/9781337111522_smallCoverImage.gif)
![Microeconomics: Private and Public Choice (MindTa…](https://www.bartleby.com/isbn_cover_images/9781305506893/9781305506893_smallCoverImage.gif)
Microeconomics: Private and Public Choice (MindTa…
Economics
ISBN:
9781305506893
Author:
James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:
Cengage Learning
![Economics For Today](https://www.bartleby.com/isbn_cover_images/9781337613040/9781337613040_smallCoverImage.gif)
![MACROECONOMICS FOR TODAY](https://www.bartleby.com/isbn_cover_images/9781337613057/9781337613057_smallCoverImage.gif)