VD1

Assume the monetary policy curve is given by r = 1.25 + 0.75

a.Calculate the real interest rate when the inflation rate is 3%, 4%, and 5%. .

b. Draw the MP curve showing the points found above. Properly label the points from part

c. Assume now that the monetary policy curve is r= 2.25 + 0.75. Does the new monetary policy curve represent an autonomous tightening or loosening of monetary policy?

d. Calculate the real interest rate when the inflation rate is 3%, 4%, and 5%, and draw the new MP curve, showing the shift from part (b)