According to the Fisher equation, the real interest, r_t, equals the nominal interest rate, i_t, minus the expected inflation rate, which is written as: A) E_t $\pi$_t B) E_t $\pi$_t+1 C) E_t+1 $\pi$_t D) E_{t + 1} $\pi$_{t + 1}

Question

Quizplus · Accepted Answer

The Fisher equation is: r = i - π, where r is the real interest rate, i is the nominal interest rate, and π is the expected inflation rate. Rearranging this formula, we get i = r + π. Therefore, the expected inflation rate can be calculated by subtracting the real interest rate from the nominal interest rate. In choice B, E_t+1F1F1F1S1F1F1F10 is the expected inflation rate, and i_t is the nominal interest rate, which can be re-arranged to i_t+1 by adding one to the time period. Therefore, choice B is the correct answer.

According to the Fisher Equation, the Real Interest, Rt, Equals π\piπ

According to the Fisher Equation, the Real Interest, R_t, Equals $\pi$