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Determine the market lending rate

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Assignment:

If expected inflation is 3.5%, current inflation is 2.2% and the real equilibrium interest rate is 3.1%, using the Taylor rule, determine:

a) The impact of a 5% recession on short term nominal policy rate.

b) If the wedge between policy and commercial bank lending rate is 2%, determine the market (nominal) lending rate?

c) The real profit margin of banks if liquidity premium was 5%.

Reference no: EM133250495

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