Consider the policy rule used in the chapter: (a) Compute the level of the (nominal) interest rate
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(a) Compute the level of the (nominal) interest rate implied by this rule when the inflation rate takes the following values: 10%, 5%, 2%, 1%.
(b) Repeat part (a) when m̅ = 1 instead. Explain why you get different answers.
Transcribed Image Text:
R-T =m (4 - T ), where we assume r = 2%, m = 1/2, and ī = 2%.
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a 10 percent inflation 6 percent real 16 percent nominal 5 percent inflation 35 percent rea...View the full answer
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