Given a monetary policy rule of the form r = p + 0.5Y^{^}+ 0.5p - p*) + 0.03 and assuming that the output gap equals zero, an unexpected price shock of A) raise nominal interest rates by 5 percent. B) raise the real interest rate target by 2.5 percent. C) raise nominal interest rates by 7.5 percent. D) raise the inflation target by 2.5 percent. E) wait and see if the shock turned out to be a permanent change.

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The Answer of Given a monetary policy rule of the form r = p + 0.5Y^{^}+ 0.5p - p*) + 0.03 and assuming that the output gap equals zero, an unexpected price shock of A) raise nominal interest rates by 5 percent. B) raise the real interest rate target by 2.5 percent. C) raise nominal interest rates by 7.5 percent. D) raise the inflation target by 2.5 percent. E) wait and see if the shock turned out to be a permanent change.

Given a Monetary Policy Rule of the Form R =