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Roar Roar
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7 years ago
Let: (1) Pt be the price of one unit of a market basket of goods (i.e., a composite commodity) in year t; (2) Pet+1 be the expected price of one unit of a market basket of goods in year t+1; (3) πet+1 be the expected rate of inflation between period t and t+1; and (4) it be the one-year nominal interest rate. Suppose an individual borrows the equivalent of one unit of a composite commodity today. Given this information, which of the following expressions represents (i.e., is equal to) the real interest rate (rt)?
A) (1 + it)(Pet+1)/(Pt)
B) (1 + πet+1)/(1 + it)
C) {(1 + πet+1)/(1 + it)} - 1
D) {(1 + it)(Pt)/(Pet+1)} - 1
E) none of the above
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Macroeconomics

Macroeconomics


Edition: 6th
Authors:
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vonCOLLINZOvonCOLLINZO
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