An open-market purchase of bonds by the Central Bank increases monetary base and reduces the nominal interest rate. increases monetary base and reduces bond prices. has no effect on the monetary base or the nominal interest rate. increases the monetary base but reduces the nominal money supply.
An open-market purchase of bonds by the Central Bank increases monetary base and reduces the nominal interest rate. increases monetary base and reduces bond prices. has no effect on the monetary base or the nominal interest rate. increases the monetary base but reduces the nominal money supply.
Chapter26: Monetary Policy
Section: Chapter Questions
Problem 3SQ
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Please highlight the correct answer the two questions and explain the math/reasoning behind it
Transcribed Image Text:If the expected inflation rate was 1% per year, and the expected real interest rate was 2% per
year, but the actual inflation rate turned out to be 3% per year, then the ex post real interest
rate turned out to be
3% per year.
2% per year.
1% per year.
zero.
Transcribed Image Text:An open-market purchase of bonds by the Central Bank
increases monetary base and reduces the nominal interest rate.
increases monetary base and reduces bond prices.
has no effect on the monetary base or the nominal interest rate.
increases the monetary base but reduces the nominal money supply.
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