The two-year interest rate is 13.8% and the expected annual inflation rate is 6.9%. a. What is the expected real interest rate

Real interest rate= -0.0048= -0.48%

Explanation:

Giving the following information:

The two-year interest rate is 13.8% and the expected annual inflation rate is 6.9%

First, we need to calculate the biannual inflation rate:

Biannual inflation rate= (1+r)^2 - 1

Biannual inflation rate= (1.069^2) - 1

Biannual inflation rate= 0.1428

Now, to calculate the real interest rate, we need to deduct from the nominal interest rate the effect of inflation:

Real interest rate= 0.138 - 0.1428

Real interest rate= -0.0048

The real interest rate is negative. It means that the purchasing power of an investment decrease due to the negative effect of inflation.

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hi,

henry is an economist and wants to understand the relationship between inflation and consumer spending habits. for his research, he needs the consumer price index for 2014 and the inflation rate. based on the prices of goods given, what will he find to be the cpi and inflation rate for 2014? assume that a consumer’s basket for three consecutive years consists of the following:

you dont privide answer choices.

answer - 15% of a inflatation rate is 15% less in cpi