Suppose the Interest Rate That Banks in Techland Charge One

question 12

Essay

Suppose the interest rate that banks in Techland charge one another for overnight loans is 5 percent,the long-term nominal interest rate is 4.5 percent,and the long-term expected inflation rate is 3 percent.
a)What is the long-term expected real interest rate?
b)How will the long-term expected real interest rate be affected if the central bank of Techland starts purchasing government bonds from banks?

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Definitions:

ATP Production

The process by which cells generate adenosine triphosphate (ATP), the primary carrier of energy within cells.

Chemiosmosis

A process by which ATP is generated in the mitochondria through the movement of hydrogen ions across a membrane.

Inner Mitochondrial Membrane

The membrane inside mitochondria that is the site of the electron transport chain and ATP (adenosine triphosphate) production.

Electron Transport Chain

A series of complexes that transfer electrons from electron donors to electron acceptors via redox reactions, coupled with the transfer of protons across a membrane to generate ATP.