Suppose the Federal Reserve the Fed decides to tighten credit by contracting the money supply Use the following graph by moving the black X to show what happens to the equilibrium level of borrowing and the new equilibrium interest rate INTEREST RATE r Percent 16 D CAPITAL Billions of dollars S2 Short term interest rates Which tend to be more volatile short or long term interest rates O Long term interest rates S1 Equilibrium If the inflation rate was 3 40 and the nominal interest rate was 5 60 over the last year what was the real rate of interest over the last year Faith etis average Round intermediate calculations to four decimal places