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If inflation goes up by 7 percentage points, the target ( nominal ) federal funds rate goes up by percentage points ( percentage points due
If inflation goes up by percentage points, the target nominal federal funds rate goes up by
percentage points percentage points due to the direct impact of inflation and another
percentage points due to an increase in the inflation gap
Consider the Fisher equation. Given the increase in the nominal interest rate you just calculated and the
percentage point increase in inflation we started with, the real interest rate must have increased by
percentage points.
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