6. The Fisher effect and the cost of unexpected inflation Suppose the nominal interest rate on car loans is 13% per year, and both actual and expected inflation are equal to 4%. 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 Nominal Interest Rate Expected Inflation Actual Inflation Expected Real Interest Rate Actual Real Interest Rate (Percent) (Percent) (Percent) (Percent) (Percent) Before increase in MS 13 4 4       Immediately after increase in MS 13 4  6

Brief Principles of Macroeconomics (MindTap Course List)
8th Edition
ISBN:9781337091985
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter12: Money Growth And Intlation
Section: Chapter Questions
Problem 6PA
Question

6. The Fisher effect and the cost of unexpected inflation

Suppose the nominal interest rate on car loans is 13% per year, and both actual and expected inflation are equal to 4%.
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
Nominal Interest Rate
Expected Inflation
Actual Inflation
Expected Real Interest Rate
Actual Real Interest Rate
(Percent)
(Percent)
(Percent)
(Percent)
(Percent)
Before increase in MS 13 4 4
 
 
 
Immediately after increase in MS 13 4  6
 
 
 
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