In country X, expected inflation per year is only 7%, but the expected variation in inflation is

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In country X, expected inflation per year is only 7%, but the expected variation in inflation is large. Suppose that inflation can vary within the range 3% to 19%.

a) What is the range of real rate of interest if the nominal interest rate in country X is 9%?

b) If probability of 19% inflation is 0.25 and 3% inflation is 0.75, what is the expected real rate of interest in country X?

c) What is the standard deviation of inflation and real interest rate?

Related Book For answer-question

Economics Today

ISBN: 978-0132554619

16th edition

Authors: Roger LeRoy Miller

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Posted Date: Apr 02, 2019 10:22 AM

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In country X, expected inflation per year is only 7%, but the expected variation in inflation is

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