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You observe that the inflation rate in the United States is 2.2 percent per year and that T-bills currently yield 2.7 percent annually. Use the approximate international Fisher effect to answer the following questions. a. What do you estimate the inflation rate to be in Australia, if short-term Australian government securities yield 7 percent per year

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abiolataiwo2015

Answer:

6.5%

Explanation:

Calculation to determine What do you estimate the inflation rate to be in Australia, if short-term Australian government securities yield 7 percent per year

Using this formula

Inflation rate=Australia Short term securities-(US T-bills yield-US inflation rate )

Let plug in the formula

Inflation rate=7%- (2.7%-2.2%)

Inflation rate=7%-0.5%

Inflation rate=6.5%

Therefore what do you estimate the inflation rate to be in Australia, if short-term Australian government securities yield 7 percent per year is 6.5%

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