Question: Please answer the questions. Do not use handwriting. thank you. a. What is the real interest rate if the nominal interest rate is 10% and

Please answer the questions. Do not use handwriting. thank you.

a. What is the real interest rate if the nominal interest rate is 10% and the expected inflation rate is 13% over the course of a year? As a lender, will you be more or less willing to make a loan in this condition?

b. Explain and graphically show how will an increase in expected inflation affect the bond market? (The Fisher Effect)

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