Problem
1. Assume the monetary policy curve is given by r = 1.5 + 0.75 π
a) Calculate the real interest rate when the inflation rate is 2%, 3%, and 4%.
b) Plot the monetary policy curve and identify the previous points. r = 1.5 + 0.75 p
2. Refer to the monetary policy curve described in Problem 1. Assume now that the monetary policy curve is r = 2.5 + 0.75 π.
a) Does the new monetary policy curve represent an autonomous tightening or loosening of monetary policy?
b) Plot the new monetary policy curve on the same graph as in the previous problem.
The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.