Suppose the nominal interest rate on car loans is 11% 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 PeriodNominal Interest Rate (Percent)Expected Inflation (Percent)Actual Inflation (Percent)Expected Real Interest Rate (Percent)Actual Real Interest Rate (Percent)Before increase in MS1144 Immediately after increase in MS114 6 Now suppose the Fed unexpectedly increases the growth rate of the money supply, causing the inflation rate to rise unexpectedly from 4% to 6% per year. Complete the second row of the table by filling in the expected and actual real interest rates on car loans immediately after the increase in the money supply (MS). The unanticipated change in inflation arbitrarily benefits (a. borrows, b. lenders). Now 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 will (a. rise, b. fall) to ___% per year. Suppose the nominal interest rate on car loans is 11% 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 PeriodBefore increase in MSImmediately after increasein MSNominal InterestRate(Percent)1111ExpectedInflation(Percent)ActualInflation(Percent)The unanticipated change in inflation arbitrarily benefits6Expected Real InterestRate(Percent)Actual Real InterestRate(Percent)Now suppose the Fed unexpectedly increases the growth rate of the money supply, causing the inflation rate to rise unexpectedly from 4% to 6% peryear.Complete the second row of the table by filling in the expected and actual real interest rates on car loans immediately after the increase in the moneysupply (MS).Now 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 will% per year.▼ to

An increase in the nominal price of products and services in the economy for a given period is…

Answered: Suppose the nominal interest rate on…

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter18: Introduction To Macroeconomics: Unemployment, Inflation, And Economic Fluctuations

Section: Chapter Questions

Problem 13P

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Suppose the nominal interest rate on car loans is 11% 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 (Percent)	Expected Inflation (Percent)	Actual Inflation (Percent)	Expected Real Interest Rate (Percent)	Actual Real Interest Rate (Percent)
Before increase in MS	11	4	4
Immediately after increase in MS	11	4	6

Now suppose the Fed unexpectedly increases the growth rate of the money supply, causing the inflation rate to rise unexpectedly from 4% to 6% per year.

Complete the second row of the table by filling in the expected and actual real interest rates on car loans immediately after the increase in the money supply (MS).

The unanticipated change in inflation arbitrarily benefits (a. borrows, b. lenders).

Now 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 will (a. rise, b. fall) to ___% per year.

Suppose the nominal interest rate on car loans is 11% 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
Before increase in MS
Immediately after increase
in MS
Nominal Interest
Rate
(Percent)
11
11
Expected
Inflation
(Percent)
Actual
Inflation
(Percent)
The unanticipated change in inflation arbitrarily benefits
6
Expected Real Interest
Rate
(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 4% to 6% per
year.
Complete the second row of the table by filling in the expected and actual real interest rates on car loans immediately after the increase in the money
supply (MS).
Now 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 will
% per year.
▼ to

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