omiafservietquitdticherathbs paeAplia Shader t Question Horn

omiaf/serviet/quitdticherathbs paeAplia: Shader t Question @Horne x S. Inflation and the nominal interest rate The following graph shows the supply and demand curves in the market for loanable funds when actual inflation and expected inflation are zero. Now suppose the expected inflation rate increases to 2%, Show the efect of this encrease by dragging one or both curves on the graph.

Solution

Answer :- Nominal interest rate = Real interest rate + Expected inflation rate.

= 10 % + 2 %

= 12 %

Conclusion :-

Real interest rate	10 %
Nominal interest rate	12 %