25 points total) Consider a closed economy described by the following model: = 500 + 0.75 x D = 700 I = 100 = 0.2 x D = Potential GDP is 3000 and the neutral real interest rate is 2%. The central bank has an inflation target of 2.5% and follows the textbook's central bank policy rule to set interest rates. The risk premium is 3%. a. (5 points) How much is the output gap? Write your answer as a percentage and round to two decimals. What sort of output gap is this? b. (5 points) If current inflation is 2%, what is the nominal interest rate the central bank would choose if they follow the central bank rule of thumb? What is the real policy interest rate? You can use the approximation. c. (5 points) If the central bank were to set the policy rate according to your answer at part b, how much would be the real and nominal interest rate in the economy? You can use the approximation. Explain in your answer why or why not these numbers are different from part b. d. (5 points) As a result of the interest rate policy GDP is now 2875, and inflation is 0.5%. How much is the output gap now? Write your answer as a percentage and round to two decimals. e. (5 points) What is now the nominal policy rate the central bank should choose? Write your answer as a percentage and round to two decimals. Briefly explain your