Question

When output is below potential and the policy rate has hit the floor of​ zero, the resulting fall in inflation leads to​ ________ real interest​ rates, which​ ________ output​ further, which causes inflation to fall further.

Answer 1

High real rate Depressing

Answer 2

high real rate of interest, depressing

Step-by-step explanation:

If output is less than potential and the rate of policy has fall to the ground of zero, the subsequent decline in inflation results in high real rate of interest which further depressing output, causing inflation to even further decline.

If the actual output is less than potential output, demand or supply has fallen, resulting in job and output declines