Suppose the Fed wants to set the real interest rate 1 percentage point lower than the inflation rate. Nominal interest rates cannot fall below zero. a. Graph the MP curve for inflation values between -2% and 2%. b. Graph the AD curve. Label the inflation rate at which it kinks.

Suppose the Fed wants to set the real interest rate 1 percentage point lower than the inflation rate. Nominal interest rates cannot fall below zero. a. Graph the MP curve for inflation values between -2% and 2%. b. Graph the AD curve. Label the inflation rate at which it kinks.

Principles of Economics (MindTap Course List)

8th Edition

ISBN:9781305585126

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter35: The Short-Run Trade-off Between Inflation And Unemployment

Section: Chapter Questions

Problem 5CQQ

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Suppose the Fed wants to set the real interest rate 1 percentage point lower than the inflation rate. Nominal interest rates cannot fall below zero.

a. Graph the MP curve for inflation values between -2% and 2%.

b. Graph the AD curve. Label the inflation rate at which it kinks.

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