Question

Fill in the blanks in the following tables:

Instructions: If you are entering any negative numbers be sure to include a negative sign (-) in front of those numbers.

	Real Interest Rate	Nominal Interest Rate	Expected Inflation
a.	5		2
b.		3	4
c.	3	6
d.		5	1

Instructions: If you are entering any negative numbers be sure to include a negative sign (-) in front of those numbers.

	Real Interest Rate	Nominal Interest Rate	Expected Inflation
a.	9		10
b.		11	16
c.	6	8
d.		6	2

Answer 1

Table 1

a) Nominal interest rate = real interest rate + expected inflation

Nominal interest rate = 5 + 2 ( 7)

b) Real interest rate = Nominal interest rate - expected inflation

Real interest rate = 3 - 4 ( -1)

c) expected inflation = Nominal interest rate - Real interest rate

expected inflation = 6 - 3 ( 3)

d) Real interest rate = Nominal interest rate - expected inflation

Real interest rate = 5 - 1 ( 4)

______________________________________________________________________________

Table 2

Nominal interest rate = real interest rate + expected inflation

a) Nominal interest rate = 9 + 10 ( 19)

b) Real interest rate = Nominal interest rate - expected inflation

Real interest rate = 11 - 16 ( -5)

c) expected inflation = Nominal interest rate - Real interest rate

expected inflation = 8 - 6 ( 2)

d) Real interest rate = Nominal interest rate - expected inflation

Real interest rate = 6 - 2 ( 4)

b)