Select one: O MRt Interest rate (r) % MRW O MRX MRy O MRZ 14 12 10 Inflation % 8 6 4 2 14 12 10 8 6 4 2 MR₂ MRy MR PC MR MR VPC B IS Output Figure 8 The IS and MR curves At point A in Figure 8, inflation is above its target level, and the real interest rate as shown by the IS curve is 3%. The target level of inflation is achieved at the equilibrium point B. In order to move the economy to the target level the central bank must raise the interest rate to create a fall in aggregate demand. Figure 8 shows a range of possible monetary rule (MR) curves that vary with the central bank inflation preference. Under which monetary rule (MR) curve will the central bank initially hike up the real interest rate to 11%? Output

Select one: O MRt Interest rate (r) % MRW O MRX MRy O MRZ 14 12 10 Inflation % 8 6 4 2 14 12 10 8 6 4 2 MR₂ MRy MR PC MR MR VPC B IS Output Figure 8 The IS and MR curves At point A in Figure 8, inflation is above its target level, and the real interest rate as shown by the IS curve is 3%. The target level of inflation is achieved at the equilibrium point B. In order to move the economy to the target level the central bank must raise the interest rate to create a fall in aggregate demand. Figure 8 shows a range of possible monetary rule (MR) curves that vary with the central bank inflation preference. Under which monetary rule (MR) curve will the central bank initially hike up the real interest rate to 11%? Output

Brief Principles of Macroeconomics (MindTap Course List)

8th Edition

ISBN:9781337091985

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter12: Money Growth And Intlation

Section: Chapter Questions

Problem 6PA

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