Consider the Following Monetary Policy Rules for Two Countries,A and B

question 199

Essay

Consider the following monetary policy rules for two countries,A and B:
A: interest rate = 1.8 (inflation - 3)+ 3
B: interest rate = 2 (inflation - 3)+ 4

(A)Graph the policy rules.If the inflation rate is 2 percent in both countries,what is the interest rate in each country?
(B)Which of the two countries has a higher tolerance for inflation? Explain.

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