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21 July, 13:01

Assume a nominal interest rate on one-year U. S. Treasury Bills of 2.60% and a real rate of interest of 1.00%. Using the Fisher Effect Equation, what is the approximate expected rate of inflation in the U. S. over the next year?

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  1. 21 July, 13:23
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    1.58%

    Explanation:

    Fisher equation:

    (1 + nominal interest rate) = (1 + real interest rate) x (1 + expected rate of inflation)

    1.026 = 1.01 x (1+expected rate of inflation_)

    --> Expected rate of inflation = 1.58%
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