Question

Assume a nominal interest rate on oneminusyear U.S. Treasury Bills of​ 3.80% and a real rate of interest of​ 2.00%. Using the Fisher Effect​ Equation, what is the exact expected rate of inflation in the U.S. over the next​ year?

Answer 1

1.76%

Step-by-step explanation:

Fisher Effect equation:

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

1.038 = 1.02 x ( 1 + expected inflation rate)

--> Expected inflation rate = 1.76%