Homework Answers
Ans:- In this question, it is given that the monetary policy curve is given by r = 1.75 + 0.5*π.
we need to calculate the real interest when the Inflation rate is 2%. 5% and 6%.
(a) When the inflation rate is 2% i.e π = 2% then the real interest rate will be
r = 1.75 + 0.5* 2
r = 2.75%.
(b) when π = 5% then the the real interest will be
r = 1.75 + 0.5 * 5 = 4.25%.
(c) When π = 6% then the the real interest will be
r = 1.75 + 0.5 * 6 = 4.75%.
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