Suppose that the nominal rate of interest is 5% and the expected rate of inflation is 2%.What is the expected real rate of interest according to Fisher? Calculate the after-tax expected real rate assuming a 30% marginal tax rate.If inflation expectations increase by 2%, what will be the new nominal rate according to Fisher? According to Darby/Feldstein? What should happen to bond prices and stock prices if the expected rate of inflation increases? Why?

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According to the Fisher equation the expected real rate of interest can be calculated as follows tex... View the full answer