One-year Treasury bill rates in 20XX averaged 5.15 percent and inflation for the year was 7.3 percent. If investors had expected the same inflation rate as that realized, calculate the real interest rate for 20XX according to the Fisher effect.

Question

Quizplus · Accepted Answer

The real interest rate is the nominal interest rate minus the expected inflation rate. In this case, the nominal interest rate is 5.15 percent and the expected inflation rate is 7.3 percent. Therefore, the real interest rate is 5.15 percent - 7.3 percent = -2.15 percent.

One-Year Treasury Bill Rates in 20XX Averaged 5