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Question 2.1 [2 point/ Assume that the central bank sets the current real short-run interest rate to R1 -2% and the private sector believes that
Question 2.1 [2 point/ Assume that the central bank sets the current real short-run interest rate to R1 -2% and the private sector believes that this short-run real interest rate will prevail in the future as well. According to the expectations hypothesis, what should be the real interest rate in period t on a two-year loan? What should be the interest rate on a five-vear loan? Question 2.2 [3 points/ Assume that the central bank lowers the short-run real interest rate to zero in period t but the private sector expects that in period t+1, the short-run real interest rate will return to 2% and stay at 2% thereafter. According to the expectations hypothesis, what should be the real interest rate in period t on a two-year and a five-year oan Question 2.3 [3 points] Assume that the central bank lowers the short-run real interest rate to zero in period t and the private sector expects that the short-run real interest rate will remain at zero also in periods t+ 1 and t+ 2, after which it will return to 2% and stay at 2% thereafter. According to the expectations hypothesis, what should be the real interest rate in period t on a two-year and a five-year loan
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