Which country is at greater risk of a liquidity trap

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Reference no: EM131221784

Suppose the neutral real interest rate is 3 percent in country A and 1 percent in country B.

a. What might explain this difference?

b. If the central banks of the two countries choose the same inflation target, which country is at greater risk of a liquidity trap? Explain.

c. Should the two countries choose the same inflation target? Explain.

Reference no: EM131221784

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