- for Taylor rule Qs: if they don’t specify that the neutral rate is real or nominal, do we assume it is nominal?
2) I thought inflation increases not decreases during a contraction?
3)In which part of the business cycle does the yield curve steepen? I would think initial recovery and early expansion but that’s not what I’m finding in CFAI Qs unless I’m missing something here…
If you’re using Kaplan for prep or if you look at Los 10g of the curriculum, it says that during a contraction, real economic activity is declining and inflation is peaking (so its not coming down)…Although the question says that inflation is coming down. So im just trying to decide which one is right?
CB drops short rates in a contraction so the yield curve steepens.
Inflation is a lagging indicator that rises in good times and declines in bad times. Right around the start of a contraction is when it would have peaked.