Assume a nominal interest rate on one-year U.S. Treasury Bills of 4.60% and a real rate of interest of 2.50%. Using the Fisher Effect Equation, what is the approximate expected rate of inflation in the U.S. over the next year?

Question

Quizplus · Accepted Answer

The Fisher Effect Equation states that the nominal interest rate is approximately the sum of the real interest rate and the expected inflation rate. Therefore, expected inflation = nominal rate - real rate = 4.60% - 2.50% = 2.10%.

Assume a Nominal Interest Rate on One-Year U