Suppose the neutral real interest rate is 3 percent in Country A and 1 percent in Country
Question:
a. What might explain this difference?
b. If the central banks of the two countries choose the same inflation target, which country is at greater risk of a liquidity trap? Explain.
c. Should the two countries choose the same inflation target? Explain.
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a The neutral interest rate is defined as the interest rate at which output equals potential output ...View the full answer
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