Suppose people anticipate inflation will be 5 percent during the next several years.If the real rate of interest is 4 percent,the money rate of interest must be

Question

Quizplus · Accepted Answer

The money rate of interest is calculated by adding the anticipated rate of inflation to the real rate of interest. Therefore, the money rate of interest would be 9 percent: (4 percent real rate) + (5 percent anticipated inflation) = 9 percent money rate.

Suppose People Anticipate Inflation Will Be 5 Percent During the Next