economy Only 4th question(last one) 6. The Fisher effect and the cost of unexpected inflationSuppose the nominal interest rate on savings accounts is 11% per year, and both actual andexpected inflation are equal to 6%.Complete the first row of the table by filling in the expected real interest rate and the actual realinterest rate before any change in the money supply.Time PeriodBefore increase inMSImmediately afterincrease in MSNominalInterestRate(Percent)11to11Expected ActualInflation Inflation(Percent) (Percent)6610Expected RealInterest Rate(Percent)Actual RealInterest Rate(Percent)Now suppose the Fed unexpectedly increases the growth rate of the money supply, causing theinflation rate to rise unexpectedly from 6% to 10% per year.Complete the second row of the table by filling in the expected and actual real interest rates onsavings accounts immediately after the increase in the money supply (MS).The unanticipated change in inflation arbitrarily harmsNow consider the long-run impact of the change in money growth and inflation. According to theFisher effect, as expectations adjust to the new, higher inflation rate, the nominal interest rate will% per year.

The nominal interest rate is 11% Suppose the Fed unexpectedly increases the growth rate of the money…

Now consider the long-run impact of the change in money growth and inflation. According to the Fisher effect, as expectations adjust to the new, higher inflation rate, the nominal interest rate will % per year.

Now consider the long-run impact of the change in money growth and inflation. According to the Fisher effect, as expectations adjust to the new, higher inflation rate, the nominal interest rate will % per year.

ENGR.ECONOMIC ANALYSIS

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ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

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Question

economy

Only 4th question(last one)

6. The Fisher effect and the cost of unexpected inflation
Suppose the nominal interest rate on savings accounts is 11% per year, and both actual and
expected inflation are equal to 6%.
Complete the first row of the table by filling in the expected real interest rate and the actual real
interest rate before any change in the money supply.
Time Period
Before increase in
MS
Immediately after
increase in MS
Nominal
Interest
Rate
(Percent)
11
to
11
Expected Actual
Inflation Inflation
(Percent) (Percent)
6
6
10
Expected Real
Interest Rate
(Percent)
Actual Real
Interest Rate
(Percent)
Now suppose the Fed unexpectedly increases the growth rate of the money supply, causing the
inflation rate to rise unexpectedly from 6% to 10% per year.
Complete the second row of the table by filling in the expected and actual real interest rates on
savings accounts immediately after the increase in the money supply (MS).
The unanticipated change in inflation arbitrarily harms
Now consider the long-run impact of the change in money growth and inflation. According to the
Fisher effect, as expectations adjust to the new, higher inflation rate, the nominal interest rate will
% per year.

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