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Unformatted text preview: i. 7% = 4% + 3% ii. 10% = 4% + 6% iii. 6% = 4% + 2% iv. 22% = 19% + 3% b. ∆ M = 8% : 12 % : 5% c. ∆ V = 0% : 0 % : 0% d. ∆ Q = 3% : 3% : 3% e. Real Rate of Interest = 5% f. How Much is the nominal interest rate? i. Nominal Interest Rate = Real Rate of Interest + Inflation Rate 1. 10% = 5% + 5% 2. 14% = 5% + 9% 3. 7% = 5% + 2% ii. ∆ M + ∆ V = ∆ P + ∆ Q 1. 8% + 0% = 5 + 3% 2. 12 + 0 = 9 + 3 3. 5 + 0 = 2 + 3 iii. If the ∆ M is greater than the ∆ Q (with ∆ V=0) 1. Inflation rate will increase ( ∆ P) 2. Nominal interest rates increase 3. ⇑ MS nominal interest rates ⇑ iv. If you decrease ∆ M, then inflation rate decreases then 1. Nominal interest rates decrease 2. ⇓ MS nominal interest rates ⇓ See notes for graphs...
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 Spring '08
 Somppi
 Inflation, Nominal Interest Rate, nominal interest rates

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