Questions
ECON 13310 1 Introduction to Macroeconomic Analysis: A Data Driven Approach Final Exam
Multiple choice
Which of the following are correct expressions of the Fisher equation? (Select all that apply)
Options
A.𝑟
𝑡
≈
𝑅
𝑡
+
𝜋
𝑡
B.(
1
+
𝑟
𝑡
)
=
(
1
+
𝜋
𝑡
)
(
1
+
𝑅
𝑡
)
C.(
1
+
𝑟
𝑡
)
=
1
𝑃
𝑡
(
1
+
𝑅
𝑡
)
𝑃
𝑡
+
1
D.𝑟
𝑡
≈
𝑅
𝑡
−
𝜋
𝑡
E.(
1
+
𝑟
𝑡
)
=
(
1
+
𝑅
𝑡
)
𝑃
𝑡
+
1
1
𝑃
𝑡
F.(
1
+
𝑟
𝑡
)
=
(
1
+
𝑅
𝑡
)
(
1
+
𝜋
𝑡
)
View Explanation
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Step-by-Step Analysis
The question asks which expressions correctly represent the Fisher equation, and to select all that apply.
Option 1: (1 + r_t) = (1 + π_t)(1 + R_t). This is a correct rearrangement of the Fisher equation, since the Fisher identity states that nominal rate equals the product of (1 plus real rate) and (1 plus inflation), i.e., (1 + r) ≈ (1 + R)(1 + π) when working with rates over a period. Multiplication is commutative, so writing π_t first or R_t first yields th......Login to view full explanationLog in for full answers
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Similar Questions
If the nominal interest rate is 7% p.a and the real rate of interest is 4% p.a, the expected inflation rate will be approximately
Now assume that 𝑟 ¯ = 1 % and 𝜋 ¯ = 2.5 % . Using your answer from the previous question, you know that the nominal interest rate 𝑖 𝑡 = 𝑅 𝑡 + 𝜋 𝑡 is ______ percent. Use the policy rule and the Fischer equation to answer this question.
The central bank uses the simple monetary rule to set the real interest rate. You observe that the inflation rate is 2 percentage points below the target inflation rate of 3 percent. You also know that the marginal product of capital is 4 percent. If the central bank sets the real interest rate to 𝑅 𝑡 = 1 % , you know that the nominal interest rate is 𝑖 𝑡 = ______ percent. Hint: Calculate the value of 𝑚 ¯ first. Then compute the value of 𝑖 𝑡 .
Using the Fisher equation, calculate the nominal interest rate 𝑖 𝑡 (in percent). Round your answer to the nearest tenth of a percent.
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