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Currently the expected yearly inflation rate in U.S. is a bit less than 2.0% but let’s assume for simplicity that it is equal to 2.0% (which was also very close to the actual, as opposed to expected, inflation rate in 2012 in U.S.). The nominal interest rate on 1-year Treasury U.S. bonds is 0.11% but, again, for simplicity let’s assume that it is equal to 0%.

A) What is then the real interest rate on 1-year Treasury U.S. bonds?

B) Based on your answer to A), do you think that this could be a good time for the U.S. government to borrow money?

Microeconomics, Economics

  • Category:- Microeconomics
  • Reference No.:- M91228473

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