The following graph shows the supply of and demand for capital in a market over the last year. You can see that the demand for capital has increased over the last year (the demand curve shifted to the right). Households began saving a greater percentage of their income. Expected inflation decreased. The Federal Reserve (the Fed) decided to relax its monetary policy and expanded the money supply. New technological advances opened up more production opportunities for businesses. Does it appear that the economy has strengthened or weakened over the past year? Weakened Strengthened If the inflation rate was 3.00% and the nominal intereat rate was 9.80% over the last year, what was the real rate of interest over the last year? Disregard cross-product terms; that is, if averaging is required, use the arithmetic average. 6.80% 8.50% 5.78% 7.825 The following graph shows the supply of and demand for capital in a market over the last year. You can see that the demand for capital has increased over the last year (the demand curve shifted to the right). Households began saving a greater percentage of their income. Expected inflation decreased. The Federal Reserve (the Fed) decided to relax its monetary policy and expanded the money supply. New technological advances opened up more production opportunities for businesses. Does it appear that the economy has strengthened or weakened over the past year? Weakened Strengthened If the inflation rate was 3.00% and the nominal intereat rate was 9.80% over the last year, what was the real rate of interest over the last year? Disregard cross-product terms; that is, if averaging is required, use the arithmetic average. 6.80% 8.50% 5.78% 7.825