Table 12.1
Expected Real Rates of Interest for Five Countries

Source: Trading Economics, September, 2010
-Refer to Table 12.1. The inflation rate forecast for Japan is
A) -0.9%.
B) 0.9%.
C) 1.1%.
D) cannot be determined from the information provided.

Question

Table 12.1
Expected Real Rates of Interest for Five Countries
  
Source: Trading Economics, September, 2010
-Refer to Table 12.1. The inflation rate forecast for Japan is
A) -0.9%. 
B) 0.9%. 
C) 1.1%. 
D) cannot be determined from the information provided.

Quizplus · Accepted Answer

The expected real rate of interest for Japan is 0.3%, and since the nominal rate of interest is 0.6%, we can calculate the expected inflation rate as (Nominal Rate - Real Rate) = (0.6% - 0.3%) = 0.3%. Since the expected inflation rate is positive, we need to subtract it from the nominal rate to get the expected real rate, which is (-0.3% - (-0.9%)) = -0.9%.

Table 12.1 Expected Real Rates of Interest for Five Countries