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Suppose that the nominal rate of interest is 5% and the current expected rate of inflation is 2%. If the expected rate of inflation were
Suppose that the nominal rate of interest is 5% and the current expected rate of inflation is 2%. If the expected rate of inflation were to increase by 5% (to a new level of 7%) the nominal rate would rise to _______ according to the Fisher effect and ________ according to the Darby/Feldstein effect. (For the Darby/Feldstein effect assume a marginal tax rate of 40%)
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