When nominal interest rates are zero, the central bank can still lower them by printing money and purchasing bonds from banks. This increases the supply of loanable funds and stimulates lending. A pro-savings policy by the US would likely reduce the US trade deficit. When savings equals investment, reducing savings and increasing consumption is especially effective in stimulating output.

MACROECONOMICS FOR TODAY
10th Edition
ISBN:9781337613057
Author:Tucker
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Chapter10: Aggregate Demand And Supply
Section10.A: The Self Correcting Aggregate Demand And Supply Model
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  1. When nominal interest rates are zero, the central bank can still lower them by printing money and purchasing bonds from banks. This increases the supply of loanable funds and stimulates lending.
  2. A pro-savings policy by the US would likely reduce the US trade deficit.
  3. When savings equals investment, reducing savings and increasing consumption is especially effective in stimulating output.
  4. In the dynamic AS-AD model, a perfectly inelastic aggregate supply curve means the central bank cannot control the rate of output growth or the inflation rate.
  5. There are an infinite number of combinations of real interest rates and inflation rates consistent with a nominal interest rate of zero.
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