The central bank of the Mushroom Kingdom announces that the federal funds rate will be equal to 5% during the next two years, and after these two years it will fall to 3% for the next eight years. If the inflation rate is expected to be 1% throughout the entirety of this period, what will be the long-run expected real interest rate during these ten years? Select one: a.2.40% b.4.40% inal Exam c.7% d.33% Next page ### Bonus Question 3The central bank of the Mushroom Kingdom announces that the federal funds rate will be equal to 5% during the next two years, and after these two years, it will fall to 3% for the next eight years. If the inflation rate is expected to be 1% throughout the entirety of this period, what will be the long-run expected real interest rate during these ten years?**Select one:**- a. 2.40%- b. 4.40%- c. 7%- d. 0.33%(There are no graphs or diagrams provided with this question.)

To calculate the long run expected real interest rate, we will use following formula:

Answered: what will be the long-run expected real…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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The central bank of the Mushroom Kingdom announces that the federal funds rate will be equal to 5% during the next two years, and after these two years it will fall to 3% for the next eight years. If the inflation rate is expected to be 1% throughout the entirety of this period, what will be the long-run expected real interest rate during these ten years? Select one: a.2.40% b.4.40% inal Exam c.7% d.33% Next page

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