Answer to Question 2:

True or False?

True is the correct answer. From equation 1.

1.       i = r + τ^e

where   τ^e   is the expected rate of inflation,   r   is the contracted real interest rate and   i   is the nominal interest rate. We can subtract   r   from   i   to obtain   τ^e.  Nominal interest rates are published and therefore observable. Contracted real interest rates are not observable, but if we knew them we could calculate the expected rate of inflation. And the expected inflation rate is not observable either---if we knew it we could calculate the contracted real interest rate.

Sometimes we can infer certain things about the expected inflation rate from looking at realized real interest rates, which are easily calculated from observed nominal interest rates and the observed inflation rate obtained from some price index such as the CPI or implicit GDP deflator. Suppose, for example, that the realized real interest rate turns out to be negative. This means that the expected inflation rate last period was less than the actual inflation rate because lenders will never contract to lend at a negative real rate of interest---they would be paying people to borrow from them.