If the real interest rate is -1.4% and the nominal interest rate is 0.6%,expected inflation equals
A) -2%.
B) -0.8%.
C) 0.8%.
D) 2%.

Question

Quizplus · Accepted Answer

The expected inflation rate can be calculated using the Fisher equation: nominal interest rate = real interest rate + expected inflation. Rearranging gives expected inflation = nominal interest rate - real interest rate = 0.6% - (-1.4%) = 2%.

If the Real Interest Rate Is -1