Due to a recession, expected inflation this year is only 1.0%. However, the inflation rate in Year 2 and thereafter is expected to be constant at some level above 1.0%. Assume that the expectations theory holds and the real risk-free rate (r*) is 2.0%. If the yieldon 10-year Treasury bonds equals the 1-year yield plus 6.00%, what inflation rate is expected after Year 1?

Question 9 options:

	7.000%
	6.000%
	7.667%
	9.000%