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Relation between nominal interest rate, real interest rate and inflation
If we denote the nominal interest rate by R, the real rate by r and the expected inflation by pe then the real interest rate is defined by:
r= R- pe or R= r+ pe
What are the instruments of monetary policies
Determine about the Expected inflation Note that it is changes in prices during 2008 which matter for the high real interest rate (the time period when your deposit is earning
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P and Y are both endogenous variables and according to the quantity theory of money we need P.Y = constant. If we divide both sides by P we get Y = constant / P. Because Y = Y D i
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