As we know, rates fall when we have expansionary policy . Then why they are showing high nominal rates in loose policy?
Plz explain the given matrix
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Nominal Rate is a combination of Real Rate + Expected Inflation.
In a loose Monetary Policy, Real rates fall, expected inflation rise. In a loose fiscal policy, rates rise ( since Govt borrows money to provide the stimulus…so, debt/gdp rise)…and expected inflation rise as well. On a net basis, nominal rates rise.