Money market funds are yielding almost nothing. Last month, the interest rate on a money market fund averaged 0.08% a year and on 5-year CDs it was 2.6% a year. The inflation rate was 0.1% a year.
a- Calculate the real interest rate on each of these financial assers, i.e., the money market fund and trhe 5-year CD.
b- To maintain these real interest rates in the coming months, how will these nominal rates change if the inflation rate increases to 0.2 percent a year?