Suppose the nominal interest rate equals 9%, the expected inflation rate is 5%, and actual inflation...

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Suppose the nominal interest rate equals 9%, the expected inflation rate is 5%, and actual inflation turns out to be 3%. In t

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Answer 1

Answer #1

Option a

Ex ante or expected real interest rate = nominal interest rate - expected inflation rate = 9 - 5 = 4%

Ex post or realized real interest rate = nominal interest rate - actual inflation rate = 9 - 3 = 6%

Hence, the Ex ante or expected real interest rate is 4%

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Answer 2

Answer #2

ANSWER :

Ex-ante is based on expected values.

So,

Ex-ante real interest rate

= Expected real interest rate

= Expected nominal; rate - Expected Inflation rate

= 9% - 5%

= 4%

Hence, Option A : ex-ante real interest rate is 4% : is the ANSWER.

answered by: Tulsiram Garg

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Answer 3

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