Question: (d) If the interest rate on a one year CD is 8%, and you expect inflation to be 5% over the coming year. What is

(d) If the interest rate on a one year CD is 8%, and you expect inflation to be 5% over the coming year. What is the real rate of return? (2 marks) Suppose the real interest rate is 3% per year, and the expected inflation rate is 8%. What is the nominal rate of interest? (2 marks) Suppose the expected inflation rate rises to 10%, but the real rate is unchanged. What happens to the nominal interest rate? (1 marks)

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