(Answered) The short-term nominal interest rate is 5 with an expected

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The short-term nominal interest rate is 5%, with an expected inflation of 2%. Economists forecast that next year’s nominal rate will increase by 100 basis points, but inflation will fall to 1.5%.

What is the expected change in real interest rates? For Problems 6–8, recall from introductory macroeconomics that the money multiplier = 1/(required reserve ratio).

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