The Zero Bound on Nominal Interest Rate Hypothesis Claims That

question 20

Multiple Choice

The zero bound on nominal interest rate hypothesis claims that

• A) if the rate of inflation is low,the nominal interest rate will be high.
• B) the nominal interest rate can be negative.
• C) the real interest rate cannot be negative.
• D) the lower bound on both the nominal and the real interest rates are zero.
• E) because the nominal interest rate cannot be negative,the central bank may lose the ability to stimulate the economy with rate cuts if the inflation rate and,therefore,the nominal interest rate is low to begin with.

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Definitions:

Fringe Firms

Small companies that operate at the edges of a market, often providing alternative or innovative products compared to mainstream companies.

Profit Maximizing

The process or strategy of adjusting production and sales to achieve the highest possible profit.

Marginal Cost

The augmentation in total expenditure resulting from the manufacture of one more unit of a product or service.

Price

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