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(f) Suppose the CPI at the beginning of a year equals 120 and the expected inflation rate over the year is 1%. Calculate the expected
(f) Suppose the CPI at the beginning of a year equals 120 and the expected inflation rate over the year is 1%. Calculate the expected real interest rate, using both the exact method and the approxi- mate method. (Approximate real rate = 0.75%; Exact = 0.7426%) (g) Phil wants to earn a real interest rate of 1.5%. After looking at the interest rate offered by YBank he decides to deposit $5,000 for a year. According to the Fisher effect, what rate of inflation is Phil expecting over the next twelve months? (Expected inflation = 0.257%) (h) For term deposits of less than $5,000, YBank pays an interest rate of 0%. Jill wants to earn a real interest rate of 1%. After looking at the interest rate offered by YBank she decides to deposit $2,000 for a year. According to the Fisher effect, what rate of inflation is Jill expecting over the next twelve months? (Expected inflation = -1.0%)
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