Consider the Monetary Rule $R _ { t } - \bar { r } = 0.25 \left( \pi _ { t } - \bar { \pi } \right)$

question 104

Multiple Choice

Consider the monetary rule $R _ { t } - \bar { r } = 0.25 \left( \pi _ { t } - \bar { \pi } \right)$ . If the inflation rate is 4 percent, the marginal product of capital is 2 percent, and the target rate of inflation is 3 percent, then the real interest rate should be:

• A) 3.50 percent
• B) 3.25 percent
• C) 2.25 percent
• D) 1.75 percent
• E) 2.50 percent

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