Assume the nominal rate was 11.50% and the inflation rate was 3%. Using the Fisher Effect,...

Question

Question

Assume the nominal rate was 11.50% and the inflation rate was 3%. Using the Fisher Effect, what was the real rate?

Multiple Choice

business finance

Answer 1

Answer #1

Real rate = 8.25%

Dear Student

Thank you for using Chegg

Please find below the answer

Statementshowing Computations

Paticulars

Fisher formula is (1 + nominal rate) = (1 + real rate) x (1 + inflation rate),

(1+.115) = (1 + realrate) *(1+.03)

(1.115) = (1 + realrate) *(1.03)

1.0825 = 1 + real rate

Real rate = 8.25%

Answer 2

Similar Homework Help Questions

nominal rate of interest The expected inflation rate is 6.6% and the real rate is 5.0%. Including the Fisher effect,...

nominal rate of interest The expected inflation rate is 6.6% and the real rate is 5.0%. Including the Fisher effect, the nominal rate of interest is __%. Round your answer to two decimal places.
According to the fisher Effect, if the nominal interest rate is 1% in Japan and the...

According to the fisher Effect, if the nominal interest rate is 1% in Japan and the real rate of return in Japan is -0.5%, what should the inflation rate be?
According to the Fisher effect, an increase in the inflation rate would increase nominal interest ates"...

According to the Fisher effect, an increase in the inflation rate would increase nominal interest ates" O True O False QUESTION 33 Economists believe that the classical dichotomy separating real from nominal variables holds in the long-run. True False QUESTION 3 Assume the economy only produces basketballs. There is a money supply of $1000. The economy produces 50 basketballs that sell for $40 each. What is nominal GDP and money velocity? "Nominal GDP = $50, velocity = 0.5" "Nominal GDP...

Suppose the real interest rate is 3% and expected inflation is 3%, what is the nominal...

Suppose the real interest rate is 3% and expected inflation is 3%. What is the nominal interest rate?nominal interest rate: = _______ %All else equal, if inflation decreases by 0 %, what will happen to the nominal interest rate?The real interest rate will decrease by 0 %.The nominal interest rate will decrease by 0 %.The nominal interest rate will increase by 0 %.The real interest rate will increase by 0 %.What do economists call the relationship between the nominal interest...
3) A) Explain the Fisher Effect b) The current inflation expectation is low at about 1%,...

3) A) Explain the Fisher Effect b) The current inflation expectation is low at about 1%, if the real rate of interest long term is 2%, what will be the yield on treasury bills based on Fisher Effect?
The following questions are related to the Fisher effect. a. To demonstrate your understanding of the...

The following questions are related to the Fisher effect. a. To demonstrate your understanding of the Fisher effect, complete the following table. Real Interest Rate Nominal Interest Rate Inflation Rate 3% 10% 2%

Question 2 10 pts Based on the Fisher equation, if expected inflation Tre = 1% and nominal rate nominal = 11%, what...

Question 2 10 pts Based on the Fisher equation, if expected inflation Tre = 1% and nominal rate nominal = 11%, what would the real rate rreal be? Note: Show your answer in units of percents, use plain numbers with at least two digits after the decimal (e.g., for 12.34%, type 12.34).
Use the Fisher equation to fill in the blanks in the following table. Inflation rate Real...

Use the Fisher equation to fill in the blanks in the following table. Inflation rate Real interest rate 3% Nominal Interest rate 7% % 6X 2% 3%
Assume the nominal rate of return is 9.78% and the inflation rate is 2.82%. Find the...

Assume the nominal rate of return is 9.78% and the inflation rate is 2.82%. Find the real rate of return using the exact formula.

Question 3: The Quantity Theory and the Fisher Effect [16 Points) Suppose that in El Salvador...

Question 3: The Quantity Theory and the Fisher Effect [16 Points) Suppose that in El Salvador the velocity of money is constant, real GDP falls by 1.4% per year, the stock on money grows by 8.9% per year, and the nominal interest rate is 4.5%. (a) According to the quantity theory, what must the inflation rate be in El Salvador? [4 Points] (b) Calculate the real interest rate in El Salvador [2 Points] (e) Suppose that the central bank decides...