1. Suppose you know the following equations describe the economy: Ct = 0.63 Y + 0.20(Yt Y )

It = 0.17 Y 2(R e t 0.03)Y

Gt = 0.21Y

EXt = 0.08 Y

IMt = 0.09 Y

t = e t + 0.5 Yet

e t = t1

o = 0

= 0.02

m = 1

(a) Assume the central bank follows the policy rule Re t r = m ( e ). Write out the equation for the AD curve, using the appropriate parameter values from above.