Suppose the Federal Reserve the Fed decides to tighten credit by contracting the money supply Use the following graph by moving

Question

Suppose the Federal Reserve the Fed decides to tighten credit by contracting the money supply Use the following graph by moving the black X to show what happens to the equilibrium level of borrowing and the new equilibrium interest rate INTEREST RATE r Percent 16 D CAPITAL Billions of dollars S2 Short term interest rates Which tend to be more volatile short or long term interest rates O Long term interest rates S1 Equilibrium If the inflation rate was 3 40 and the nominal interest rate was 5 60 over the last year what was the real rate of interest over the last year Faith etis average Round intermediate calculations to four decimal places

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