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Question 3: (10 marks) Assume that the monetary policy curve is given by r = 1.5 + 0.75 a) Calculate the real interest rate when

Question 3: (10 marks)

Assume that the monetary policy curve is given by r = 1.5 + 0.75

a) Calculate the real interest rate when the inflation rate is 2%, 3%, and 4%.

b) Draw a graph of the MP curve, labeling the points from part (a).

c) Assume now that the monetary policy curve is given by r = 2.5 + 0.75 . Does the new monetary

policy curve represent an autonomous tightening or loosening of monetary policy?

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