conomy is at a short-run equilibirum where nominal interest rates (i) are zero and there is a deep recession. If expectations of inflation de-anchor, so that 0 gets closer to 1 and people start to expect deflation: a) real interest rates may increase leading to a fall in investment and output b) real interest rates may decrease leading to a fall in investment and output c) the natural rate of interest will be zero and the economy will retun to potential output d) real interest rates may increare landing
conomy is at a short-run equilibirum where nominal interest rates (i) are zero and there is a deep recession. If expectations of inflation de-anchor, so that 0 gets closer to 1 and people start to expect deflation: a) real interest rates may increase leading to a fall in investment and output b) real interest rates may decrease leading to a fall in investment and output c) the natural rate of interest will be zero and the economy will retun to potential output d) real interest rates may increare landing
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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