Question: Using the IS/MP model analyse the possible effect of a rise in the target interest rate on output, the real interest rate and inflation. Illustrate

Using the _IS/MPmodel analyse the possible effect of a rise in the target interest rate on output, the real interest rate and inflation. Illustrate the effects on output and interest rates on Figure 3

MP (1* ) Real rate of interest re IS Ye Real national income (Y ) Figure 3: //up with rise to target inflation rate

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