The central bank of the Mushroom Kingdom announces that the federal funds rate will be equal to 5% during the next two years, and after these two years it will fall to 3% for the next eight years. If the inflation rate is expected to be 1% throughout the entirety of this period, what will be the long-run expected real interest rate during these ten years? Select one: a.2.40% b.4.40% inal Exam c.7% d.33% Next page [Bonus Question 3] The central bank of the Mushroom Kingdom announces that the federal funds rate will beequal to 5% during the next two years, and after these two years it will fall to 3% for the next eight years. If theinflation rate is expected to be 1% throughout the entirety of this period, what will be the long-run expectedreal interest rate during these ten years?Select one:Spring Final Exama.2.40%b.4.40%c.7%d.33%Next page

To calculate the long run expected real interest rate, we will use following formula:

Answered: what will be the long-run expected real…

Brief Principles of Macroeconomics (MindTap Course List)

8th Edition

ISBN:9781337091985

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter16: The Influence Of Monetary And Fiscal Policy On Aggregate Demand

Section: Chapter Questions

Problem 8PA

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The central bank of the Mushroom Kingdom announces that the federal funds rate will be equal to 5% during the next two years, and after these two years it will fall to 3% for the next eight years. If the inflation rate is expected to be 1% throughout the entirety of this period, what will be the long-run expected real interest rate during these ten years? Select one: a.2.40% b.4.40% inal Exam c.7% d.33% Next page

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