Question

Until time T−1, the natural rate of interest is r₁∗ , where r₁∗ 0. Also, onward and that the central bank sets the nominal interest rate to zero from time 0 until time T−1. and output will continuously decrease without bound, not approaching any fixed value converge to a value less than i∗

alternatingly increase and decrease in successive periods, growing farther from i∗
in each period converge to a value greater than i∗
continuously increase without bound, not approaching any fixed value Suppose in the NKRE model that from time until time T−1, the natural rate of interest is r₁∗ , where r₁∗0. :an achieve its inflation target from period T onward and that the central bank sets the nominal interest rate to zero from time 0 until time T−1. From period 0 until period T−1, inflation will and output wi converge to value less than Yₘ . converge to Yₘ. alternatingly increase and decrease in successive periods, growing farther from Yₘ in each period. converge to value greater than Yₘ . continuously increase. continuously decrease.

Answer 1

In the NKRE model, the natural rate of interest until time T-1 is r₁∗ and the nominal interest rate is set to zero. In this case, inflation will continuously increase without bound and output will continuously decrease without bound.

Step-by-step explanation:

In the NKRE model, the natural rate of interest until time T-1 is r₁∗, where r₁∗ is greater than 0. From time 0 until time T-1, the central bank sets the nominal interest rate to zero. In this case, inflation will continuously increase without bound, not approaching any fixed value. Output will also continuously decrease without bound, not approaching any fixed value.