The two-year interest rate is 10.8% and the expected annual inflation rate is 5.4%. a. What is the expected real interest rate? (Do not round intermediate calculations. Enter your answer as a percent...

The two-year interest rate is 10.8% and the expected annual inflation rate is 5.4%.

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

b-1.If the expected rate of inflation suddenly rises to 7.4%, what does Fisher’s theory say about how the real interest rate will change?

multiple choice

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  Real rate does not change

  
  
  
  


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  Real rate increases

  
  
  
  


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  Real rate decreases

  
  
  
  

b-2.If the expected rate of inflation suddenly rises to 7.4%, what will be the new nominal rate?
(Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)