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1 (i). Describe the Monetary Policy Curve and assume that it is given by the expression: r= 1.5 +0.75x In which r = real rate

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1 (i). Describe the Monetary Policy Curve and assume that it is given by the expression: r= 1.5 +0.75x In which r = real rate interest; and a is the rate of inflation. (a) Calculate the value of the real interest rate when the inflation rate is 2%, 3%, 4% and 6%; draw the graph of the MP curve associated with your answers. (b) Assume now that the Monetary Policy Curve is r = 2.5 + 0.75x; Does the new MP curve represent an autonomous tightening or loosening of monetary policy? Calculate the real interest rate when the inflation rate is 2%, 3%, 4% and 6% and draw the new MP curve showing the shift from your answer in question (a) above

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