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5. Inflation and interest rates The following table gives the average nominal interest rates on six-month Treasury bills spanning the years 1971 and 1975, which
5. Inflation and interest rates The following table gives the average nominal interest rates on six-month Treasury bills spanning the years 1971 and 1975, which determined the nominal interest rate paid by the U.S. government when it issued debt in that time period. The table also gives the inflation rate for the years 1971 to 1975. (All rates rounded to the nearest 0.1 percent.) Nominal Interest Rate Inflation Rate Year (Percent) (Percent) 1971 4.5 4.2 1972 4.5 3.3 1973 7.2 6.3 1974 8.0 11.0 1975 6.1 9.1 Source: "FRED Economic Data," Federal Reserve Bank of St. Louisr last modied September 23, 201.9. accessed September 24, 2019r https:Hi'red.5t|ouisfed.org. On the following graph, use the orange points (square symbol) to plot the nominal interest rates for the years 1971 to 1975. Next, use the green points (triangle symbol) to plot the real interest rates for those years. 8.0 0 7.0 6.0 Nominal Interest Rate 5.0 A 4.0 Real Interest Rate A A 3.0 INTEREST RATE (Percent) 2.0 1.0 -10 2.0 .3.0 1970 1971 1972 1973 1974 1975 1976 YEARAccording to the table, in which year did buyers of six-month Treasury bills receive the highest real return on their investment? (1 19?1 L2 19?2 C} 19?3 L2 19?4 C3 19?5
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