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3. In this question, you should assume that the MP curve takes the following form: rlit) :17, 1: S 0.1 = f + M77: 0.1),?! 2 0.1. a. Describe verbally what this MP curve implies about how the real interest rate responds to inflation. b. Suppose that the IS curve is negatively sloped. Draw the AD curve. Now suppose that the economy is initially in a long-run equilibrium in which it = 0.02. Then there is a shock that shifts the IS curve permanently to the right (for every r, there is more Y). You should assume in your answers below that the Fed does not shift the MP curve. c. In the short run, the SRAS curve doesn't shift. How does the shock to the IS curve affect Y (output) and TC (inflation)? d. Explain how and why the SRAS curve does shift over the medium and long run. e. In the long run, is inflation higher or lower than 0.1? Explain your