3. Write the IS relation as Y = C(Y T)+I(lr +x)+G. Suppose n. is 2%. If x increases from 3 to 5%, how must the central bank change rrl to maintain the existing medium run equilibrium. Explain in words. The natural policy rate must decrease with 2% by the central bank. 4. Suppose G increases. How must the central bank change rn to maintain the existing medium-run equilibrium. Explain in words. Central bank must decrease R11 to remain at the equilibrium. 5. In the medium run, a fiscal expansion leads to an increase in the natural rate of interest. Discuss. True. Increase in G or decrease in T increases the aggregate demand. CB must raise the borrowing rate in order to increase output of money. The scal changes imply and increase in the natural policy rate