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Business · Economics
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1a.Suppose that inflation in an economy is currently 2%. Assume that there is a zero lower bound on nominal interest rates. Accordingly, the lowest the real interest rate can be is (enter your answer as a number. For example, if your answer is 5%, just enter 5. If negative, make sure to place the minus sign in front).

b.Suppose that an economy is currently experiencing deflation of 2%. Assume that there is a zero lower bound on nominal interest rates. Accordingly, the lowest the real interest rate can be is (enter your answer as a number. For example, if your answer is 5%, just enter 5. If negative, make sure to place the minus sign in front).

c.Suppose the economy is in a liquidity trap. True or false. A fiscal contraction will not have any effect on the nominal interest rate, though a fiscal expansion may have an effect on the nominal interest rate.

d.true or false. The interest rate advertised and charged by banks to consumers (like if you get a car loan or a mortgage) is the real interest rate (not the nominal interest rate).

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