This Question: 4 pts 4of10(2 complete) This Quiz: 40 pts possible tCh In 2001, t

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This Question: 4 pts 4of10(2 complete) This Quiz: 40 pts possible tCh In 2001, the Canadian economy was at full employment. Real GDP was $960 billion The nominal interest rate was 5.0 percent a year, the inflation rate was 1.0 percent a year, the price level was 1.20, and the velocity of circulation was 9.00 Calculate the real interest rate. If the real interest rate remains unchanged when the inflation rate increases to 3 percent a year and then remains constant, how does the nominal interest rate change in the long run? The real interest rate in 2001 is percent a year. If the real interest rate remains unchanged when the inflation rate increases to 3 percent a year, the nominal interest rate percent a year Enter your answer in each of the answer boxes

Explanation / Answer

real interest rate = nominal interest rate - inflation rate

real interest rate in 2001 = 5% - 1% = 4% a year

Now, inflation rate increases to 3%

Nominal interest rate also increases and is = 4% + 3% = 7% a year

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