If the central banks of the two countries choose the same, Financial Management

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If the central banks of the two countries choose the same

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.

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Financial Management: If the central banks of the two countries choose the same

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Financial Management: If the central banks of the two countries choose the same

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