If the nominal interest rate was 4 percent, the expected real interest rate was 3 percent, and the realized real interest rate was 5 percent, then the expected inflation rate was ______and the realized inflation rate was_____ .
A)?1 percent; 1 percent
B)?1 percent; 2 percent
C)1 percent; ?1 percent
D)1 percent; 1 percent

Question

Quizplus · Accepted Answer

The expected inflation rate is the nominal rate minus the expected real rate (4% - 3% = 1%). The realized inflation rate is the nominal rate minus the realized real rate (4% - 5% = -1%).

If the Nominal Interest Rate Was 4 Percent, the Expected