Money in high inflation with negative real interest rates

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• Realized real rates of interest

  140461 Realized real rates of interest I need to understand why realized real rates of interest are sometimes negative but the expected real rates are always positive.

• A liquidity trap is

  Thus, with increase in money supply, they believe that the increase in their nominal wages is an increase in their real wages.

• Using Macro Market Analysis Techniques

  In the past Central Government has used interest rates to control money supply and hence the inflation rate. When interest rates were high, it became more expensive to borrow money and savings became attractive.

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  cost of holding money, and hence to a decline in money demand, if market interest rates rise more than the interest paid on money balances as expected inflation rises.

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  Expansionary monetary policy is a policy which expands (increases) the supply of money. With an increase in money supply there is a decrease in interest rates.

• Liquidity Trap

  The problem is that, even though the instrument rate is at zero, the real (short) interest rate is too high and the economy is in a recession and/or inflation is too low, perhaps even negative.

• Fiscal Policy and Government Spending

  Part 1: Assume that the country is in a period of high unemployment, interest rates are at almost zero, inflation is about 2% per year, and GDP growth is less than 2% per year.

• Money Supply

  To keep the real interest rate constant, central bank will have to increase the nominal interest rate. Thus the new equilibrium interest rate will be higher. With high interest rates, bond prices will be lower.

• Nominal and Real Interest Rates on a Loan

  How did it affect the banks that lent the money? Since inflation is higher than expected, real interest rate will be lower in 1970s.