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Suppose the interest rate in France is 1.7%, and the expected French inflation is 0.8%. The Swiss interest rate is also 1.7% and the expected

Suppose the interest rate in France is 1.7%, and the expected French inflation is 0.8%. The Swiss interest rate is also 1.7% and the expected Swiss inflation is 0.5%.

a. What are the exact real interest rates in France and Switzerland?

b. What are the approximate real interest rates in France and Switzerland?

c. How do you explain the difference in real rates between France and Switzerland?

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