The two-year interest rate is 13.0% and the expected annual inflation rate is 6.5%.
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 8.5%, what does Fisher’s theory say about how the real interest rate will change? Real rate decreases Real rate increases 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 =%.