When output is below potential and the policy rate has hit the floor of zero, the resulting fall in inflation leads to real interest rates, which output further, which causes inflation to fall further.

Physics · High School · Thu Feb 04 2021

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Answered on Sat Nov 18 2023

When output is below potential (i.e., when there's a negative output gap) and the policy interest rate has hit the zero lower bound, the resulting fall in inflation leads to higher real interest rates, which depresses output further, which in turn causes inflation to fall further.

When output is below potential and the policy rate has hit the floor of​ zero, the resulting fall in inflation leads to​ ________ real interest​ rates, which​ ________ output​ further, which causes inflation to fall further.

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When output is below potential and the policy rate has hit the floor of zero, the resulting fall in inflation leads to real interest rates, which output further, which causes inflation to fall further.