Question: Consider the policy rule used in the chapter: (a) Compute the level of the (nominal) interest rate implied by this rule when the inflation rate

Consider the policy rule used in the chapter:

(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.

R-T =m (4 - T ), where we assume r = 2%, m = 1/2, and = 2%.

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