The two-year interest rate is 13.4% and the expected annual inflation rate is 6.7%.

a.	What is the expected real interest rate? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Expected real interest rate

%

b-1.

If the expected rate of inflation suddenly rises to 8.7%, what does Fishers theory say about how the real interest rate will change?

	Real rate increases
	Real rate decreases
	Real rate does not change

b-2.	What about the nominal rate? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Nominal rate

%