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

1) Fill in the table. Which situations (a,b,c,d,e) correspond to a liquidity trap?

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

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

4) 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?