Business, 30.03.2021 01:00 yasiroarafat12

Narnia, a developed open economy, has been experiencing double-digit inflation and a decelerating output growth for the last four quarters. Jonathan Mathews and Ben Hall, two market analysts, are discussing the various measures that can be adopted by the concerned authorities to curb inflation and boost production in the economy. Jonathan thinks that the central bank should raise the nominal interest rate to control inflation. This, he feels, will also contribute to an increase in the aggregate supply of funds available for investment in the economy. Ben however disagrees. According to him, an increase in the nominal interest rate will lower investment, leading to a decline in aggregate production by firms. This, in turn, will increase the shortage in the economy and prices will rise further. Ben's claim that a higher interest rate will increase the shortage in the economy fails to recognize the possibility that:

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Narnia, a developed open economy, has been experiencing double-digit inflation and a decelerating...

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