How does the break-even inflation rate differ from the expected inflation rate as measured in surveys?
A)They are very close to each other.
B)The break-even inflation rate varies less than the expected inflation rate from surveys.
C)The break-even inflation rate varies more than the expected inflation rate from surveys.
D)The break-even inflation rate is always several percentage points higher than the expected inflation rate from surveys.

Question

Quizplus · Accepted Answer

The break-even inflation rate is calculated by subtracting the yield on a nominal bond from the yield on an inflation-linked bond of the same maturity. It represents the market's expectations for the average inflation rate over that time period. However, it can vary more than the expected inflation rate from surveys since it takes into account market uncertainty, inflation risk premiums, and other factors that may not be reflected in survey responses. Therefore, the break-even inflation rate can fluctuate more than the expected inflation rate from surveys.

How Does the Break-Even Inflation Rate Differ from the Expected