EBK ECONOMICS
5th Edition
ISBN: 8220106907184
Author: KRUGMAN
Publisher: YUZU
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Question
Chapter 25, Problem 9P
To determine
To determine: How the lower-than-expected inflation rate affect Boris and Lynn.
Change in Interest Rate: Interest rate depends on several factors. One such factor is expected inflation rate. The relationship of interest rate and inflation rate is described by Fisher effect.
Inflation: When the price of any good increases continuously for an interval of time it is called inflation. The formula to calculate inflation rate is:
![EBK ECONOMICS, Chapter 25, Problem 9P](https://content.bartleby.com/tbms-images/9781464143847/Chapter-25/images/html_43847-25-10p_1.png)
Fisher Effect: According to this effect, when there is a rise in expected inflation rate then there is always a rise in nominal interest rate provided that loanable fund quantity and interest rate does not change.
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