3. Fed policy is centered around the neutral rate of interest. This can sometimes create trouble in satisfying the Fed's dual mandate. Ypispania is an economy whose short run equilibrium is determined by the equations IS: Y=15010r MP():r=1+ and AD: Y=14010 SRAS: =4 Notice that the economy has a sticky-price SRAS. Finally, Yspispania has a version of Okun's Law that says (YY)=5(UUN), where UN=6. The cconomy starts in a long run equilibrium a. When we say the Fed has a "dual mandate", what do we mean? b. What is Ypispania's LRAS? What's its initial neutral rate of interest? c. There is a negative shock to consumer confidence, and the IS curve shifts inwards to Y=130 10r. i. In the short run before the Fed can respond, how much does unemployment change as a result of the IS shock? ii. What is the new neutral rate of interest? d. Draw a graph of how AD, SRAS, and LRAS shift as IS and MP change in part (c). Describe how inflation, output, and unemployment change along the way. (You don't need to perform additional calculations for this question.) e. Now consider a different shock. Start as in the initial setup, but then there is a cost shock. The SRAS curve shifts to become =6. i. In the short run before the Fed can respond, how much does unemployment change as a result of the SRAS shock? ii. What is the new neutral rate of interest? f. Draw a graph of how AD, SRAS, and LRAS shift as IS and MP change in part (e). Describe how inflation, output, and unemployment change along the way. (You don't need to perform additional calculations for this question.) g. Look at your answers and graphs to parts (d) and (f). In each, did the Fed fulfil its dual mandate