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Given the Monetary Policy Rule, R = P + 0

Question 26

Multiple Choice

Given the monetary policy rule, r = p + 0.5Y^ + 0.5p - p*) + 3 and
Assuming Y^ = 0 and p = p*, let inflation increase by 2 percentage points. By how much would the Fed increase interest rates?


A) 6 percentage points
B) 2 percentage points
C) 3 percentage points
D) 5 percentage points
E) Less than 2 percentage points

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