1. An investment report opened its ‘investment outlook’ section with the comment: We expect the global economic environment to be characterised by moderate economic growth and relatively low...

1. An investment report opened its ‘investment outlook’ section with the comment: We expect the global economic environment to be characterised by moderate economic growth and relatively low inflation, a combination which should lead to relatively low interest rates also. Is this statement referring to (a) the real interest rate, (b) the nominal interest rate, or (c) both? Explain.

2. A recurrent theme of the European Central Bank is that ‘the best contribution monetary policy can make to growth and employment is to maintain stability in the general level of prices’. Does attaining price stability implicitly mean that interest rates have to be relatively volatile?