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neezy neezy
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If the people of Arissa are expecting the central bank to conduct an expansionary monetary policy for several years, how will the long-run real interest rate in Arissa be affected?
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Macroeconomics

Macroeconomics


Edition: 3rd
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Juke72Juke72
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If the people of Arissa expect the central bank to conduct an expansionary policy, inflationary expectations will rise. Since long-term expected real interest rate is the long-term nominal interest rate minus the long-term expected inflation rate, the long-term expected real interest falls as the long-term expected inflation rate rises.
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