Resources Ly Give Up? Hint Che IS-MP Analysis: Interest Rates and Output - End of Chapter Problem The federal funds rate is 4%, and inflation is 3%. The real interest rate that people can borrow money at is 1.5%. @ Macmillan Learning . Given the data provided, move the MP curve to the appropriate position. 5.0 4.5 MP curve 30 Real interest rate (re) 2.0 10 0.5 2 3 5 Output gap (9%) b. Determine the risk premium for this scenario. Risk Premium = c. Move the MP curve to the appropriate position, assuming the risk premium increases by 0.5%. 5.0 Li qx10 0.5 0.0 -3 - 2 0 2 3 Output gap (%) Macmillan Learning b. Determine the risk premium for this scenario. Risk Premium = 0.5 % c. Move the MP curve to the appropriate position, assuming the risk premium increases by 0.5%. 5.0 4.5 40 3.5 3.0 2.5 Real interest rate ( 2.0 MP curve 1.50 10 0.5 0.0 2 5 -5 - 2 0 3 4 -4 -3 - 1 Output gap (% )