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The Fisher Equation shows the relationship between the real interest rate, nominal interest rate and inflation.
If inflation is 3% and the Fed wants the real rate on short-term loans to be 2%, what should it set the nominal Fed Funds Rate equal to?
If inflation is 3% and the Fed wants to encourage borrowing by cutting the real rate on short-term loans to -1%, what should it set the nominal Fed Funds Rate equal to?
If inflation is 6% and the Fed wants to discourage borrowing by raising the real rate on short-term loans to 4%, what should it set the nominal Fed Funds Rate equal to?
2:32