Hand written solutions are strictly prohibited Suppose the nominal interest rate on savings accounts is 13% per year, and both actual and expected inflation are equal to 2%.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 PeriodBefore increase in MSImmediately after increasein MSNominal InterestRate(Percent)1313ExpectedInflation(Percent)22ActualInflation(Percent)10Expected Real InterestRate(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 2% to 10% per iyear.Complete the second row of the table by filling in the expected and actual real interest rates on savings accounts immediately after the increase inthe money supply (MS).The unanticipated change in inflation arbitrarily benefitsNow 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 willto% per year.

Expected Inflation Rate: The nominal interest rate minus the expected inflation rate. It represents…

Suppose the nominal interest rate on savings accounts is 13% per year, and both actual and expected inflation are equal to 2%. 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) 13 13 Expected Inflation (Percent) Actual Inflation (Percent) 2 10 Expected Real Interest Rate (Percent) Actual Real Interest Rate (Percent)

Suppose the nominal interest rate on savings accounts is 13% per year, and both actual and expected inflation are equal to 2%. 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) 13 13 Expected Inflation (Percent) Actual Inflation (Percent) 2 10 Expected Real Interest Rate (Percent) Actual Real Interest Rate (Percent)

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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