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a. Which situations correspond to a liquidity trap as defined in Chapter 4?

b. Which situations correspond to the case where the nominal policy interest rate is at the Zero Lower Bound?

c. Which situation has the highest risk premium? What two factors in bond markets lead to a positive risk premium?

d. Why is it so important when the nominal policy interest rate is at the Zero Lower Bound to maintain a positive expected rate of inflation?

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Macroeconomics

ISBN: 9780133780581

7th Edition

Authors: Olivier Jean Blanchard

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Question Posted: Mar 04, 2024 11:00 AM

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Fill in the table below and answer the questions that relate to the data in the table

Question:

> Situation Nominal Expected Real Risk Nominal Real policy inflation policy premium borrowing borrowing interest interest interest interest rate rate rate rate A 3 B 4 0 D E 199 0 0 2 -2 2 0 1 4 2 6 3 5

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Macroeconomics

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