EOC question 6 reading 46.
Why is the answer A and not C?
If we use a numerical example to calculate the inflation rate using the BEI formula where real rate is 4%, inflation is 3%, uncertainty for unexpected inflation is 1%, we will have the inflation rate to be equal to 4%.
Now if we expect the inflation rate to increase, lets say to 5% and the uncertainty to go down 0.5% ( I am just making it up), the inflation rate is 5.5%. So why do we say that we are uncertain about the break even inflation rate? Is it because we do not know by how much the inflation rate and the uncertainty of future inflation rate will change?