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What is the long-run expected real interest rate

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Question - Suppose the interest rate which banks in Aland charge each other for overnight loans is 5%, the long-run nominal interest rate is 4.5%, and the long-run expected inflation rate is 3%.

(a) What is the long-run expected real interest rate?

(b) How will the long-run expected real interest rate be affected if the central bank of Aland starts purchasing government bonds from banks?

Reference no: EM131821024

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