Part 1The scatter plot on the right shows combinations of nominal interest rates and inflation rates for 10 mythical countries.Part 2According to the Fisher equation, you would expect that all points should be [input] above Your answer is correct. You answered above. the 45-degree line.Part 3The real rate of interest for Atlantis is [input]enter your response here %. (Round your response to one decimal place.)

Question

Part 1The scatter plot on the right shows combinations of nominal interest rates and inflation rates for 10 mythical countries.Part 2According to the Fisher​ equation, you would expect that all points should be [input] above Your answer is correct. You answered above. the​ 45-degree line.Part 3The real rate of interest for Atlantis is [input]enter your response here ​%. ​(Round your response to one decimal place.​)

BlackTom AI · Accepted Answer

The prompt combines two parts about the Fisher equation and a data source, so I’ll walk through each blank and what it implies.

Part 1: Fill in the first blank with the correct descriptor for where nominal rates should lie relative to the 45-degree line.
- The Fisher equation states that nominal interest rate ≈ real rate + expected inflation. If you plot nominal rate on the vertical axis against inflation rate on the horizontal axis, the 45-degree line represents points where nominal rate equals inflation rate (i.e., real rate is zero).
- Therefore, when the real rate is positive, nominal = inflation + real > inflation, so the point will lie above the 45-degree line. Conversely, if the real rate were negative, points would lie below the line.
- The given answer choice for the first blank is “above,” which aligns with the scenario of a positive real rate. This makes sense conceptually because most real-world scenarios assume a nonzero (often positive) real rate, placing points above the line in such a plot.

Part 2: The second blank asks for information about Atlantis’s real rate using data from the scatter plot.
- The suggested completion is: “Insufficient information: need Atlantis nominal and inflation rates from the scatter plot (real rate = nominal rate - inflation rate).” This reasoning is correct because to compute the real rate for Atlantis, you would need both its nominal interest rate and its inflation rate from the plot (or from the underlying data).
- Without those two values, you cannot determine the real rate for Atlantis. Merely knowing that nominal and inflation rates exist in the scatter plot does not give you a numeric real rate unless you extract the specific numbers for Atlantis.

Putting it together, the two blanks require:
- First blank: interpret the Fisher relation to conclude nominal rates should lie above the 45-degree line when the real rate is positive.
- Second blank: recognize the data limitation and state that you cannot compute Atlantis’s real rate without the actual nominal and inflation values for Atlantis from the scatter plot.

Note on potential confusion to avoid: If someone misreads the axes or the line, they might mislabel the relationship (e.g., thinking points should be on, below, or randomly distributed relative to the line). Remember the key concept of the Fisher equation and the geometry of the plot to anchor your reasoning: real rate = nominal rate − inflation rate, which translates to points with positive real rate lying above the line nominal = inflation.

Homework:Chapter 4 Homework

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