Higher inflation results in

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Vaishali YadavLv10

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How does the policy rate hitting a floor of zero lead to an upward sloping aggregate demand curve?

A.When the policy rate hits a floor of the zero, the positive relationship between inflation and the real interest rate embodied by the MP curve becomes negative, and this reversal results in lower inflation producing a higher real interest rate, and hence lower planned spending, i.e., an upward-sloping AD

B.When the policy rate hits a floor of the zero, the negative relationship between planned spending and the real interest rate embodied by the IS curve becomes positive, and this reversal results in lower inflation producing a lower real interest rate, and hence lower planned spending, i.e., an upward-sloping AD curve.

C.When the policy rate hits a floor of the zero, the negative relationship between inflation and the real interest rate embodied by the MPcurve becomes positive, and this reversal results in lower inflation producing a higher real interest rate, and hence lower planned spending, i.e., an upward-sloping AD curve.

D.When the policy rate hits a floor of the zero, the positive relationship between inflation and the real interest rate embodied by the MP curve becomes negative, and this reversal results in higher inflation producing a higher real interest rate and hence a lower planned spending i.e. an upward-sloping AD curve.

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Explain why inflation might be higher than money growth in high-inflation countries and lower than money growth in low-inflation countries.

Explain why the exptected inflation rate is relevant to debtors and creditors. How does a higher-than-expected inflation rate affect the real interest rate that a borrower actually pays? Which party benefits when the inflation rate is higher than expeted?

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Higher inflation results in

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