Suppose the demand curve is Y = 38 – 3π, and the current values for o

Suppose the demand curve is Y = 38 – 3π, and the current values for output and the real interest rate are 29 and 7 percent, respectively. A decrease in inflation leads to a new output level of 32 and real interest rate at 6 percent.

The monetary policy curve is ________. Fill in the blank(s) with correct word

ANSWER

The inflation rate falls from 3 percent to 2 percent. The corresponding real interest rates are 7 percent and 6 percent, so the MP curve is r = 4 + π.