In this question, use the approximate formula-as given by the Fisher equation-for calculating the the real rate of interest. Assume a fixed real interest rate and everyone believes the Central Bank's forecasts. Believing that inflation will be 1% for the year, the current yield on a government bond that matures in one year is 2.9%. The Central Bank then revises its inflation forecast to 1.6% for the year. What will be the yield on government bonds maturing in one year after this revision? Round to one decimal place and do not enter the % sign. If your answer is 1.333%, enter 1.3. If your answer is 1.666%, enter 1.7. If appropriate, remember to enter the negative sign.

In this question, use the approximate formula-as given by the Fisher equation-for calculating the the real rate of interest. Assume a fixed real interest rate and everyone believes the Central Bank's forecasts. Believing that inflation will be 1% for the year, the current yield on a government bond that matures in one year is 2.9%. The Central Bank then revises its inflation forecast to 1.6% for the year. What will be the yield on government bonds maturing in one year after this revision? Round to one decimal place and do not enter the % sign. If your answer is 1.333%, enter 1.3. If your answer is 1.666%, enter 1.7. If appropriate, remember to enter the negative sign.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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