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511 in the missing values in the table. Nominal Policy Interest Rate 4 Nominal borrowing borrowing interest rate interest rate Expected Inflation Real policy Risk

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511 in the missing values in the table. Nominal Policy Interest Rate 4 Nominal borrowing borrowing interest rate interest rate Expected Inflation Real policy Risk interest rate Situation Real Premium 1 0 0 Which situations correspond to the case where the nominal policy interest rate is at the Zero Lower Bound? Which situation has the highest risk premium? What two factors in bond markets lead to a positive risk premium? 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? a. b. c

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