ANSWER ALL THE QUESTIONS PLZ

3. Suppose the long-run marginal product of capital equals 2% and the inflation target of the central bank is 2%. In period 0, suppose the economy is in its long-run equilibrium (that is, the short-run equilibrium equals the long-run equilibrium ). (a) Draw the AS-AD diagram for the initial equilibrium in period 0 . Clearly label the axis and label the curves AS0 and AD0. Indicate the numerical values for the variables on the horizontal and vertical axis in the initial equilibrium. What is the value for the nominal interest rate in period 0? (b) Suppose in period 1 a new Fed chair decides to permanenty raise the Fed's inflation target to 5% Using the diagram you drew in (a ), draw the AS and AD curves for period 11 labeling these as AS1 and AD1. What happens to short run output and inflation between period 0 and period 1? Assuming adaptive expectations, does the nominal interest rate go up w down, or stay the same between period 0 and 1 ? (c) In period 1 , what happens to investment and consumption? (d) Complete the following sentence: After some time, the economy transitions back to a new long-run equilibrium where short-run outp is equal to and inflation is equal to 3. Suppose the long-run marginal product of capital equals 2% and the inflation target of the central bank is 2%. In period 0, suppose the economy is in its long-run equilibrium (that is, the short-run equilibrium equals the long-run equilibrium ). (a) Draw the AS-AD diagram for the initial equilibrium in period 0 . Clearly label the axis and label the curves AS0 and AD0. Indicate the numerical values for the variables on the horizontal and vertical axis in the initial equilibrium. What is the value for the nominal interest rate in period 0? (b) Suppose in period 1 a new Fed chair decides to permanenty raise the Fed's inflation target to 5% Using the diagram you drew in (a ), draw the AS and AD curves for period 11 labeling these as AS1 and AD1. What happens to short run output and inflation between period 0 and period 1? Assuming adaptive expectations, does the nominal interest rate go up w down, or stay the same between period 0 and 1 ? (c) In period 1 , what happens to investment and consumption? (d) Complete the following sentence: After some time, the economy transitions back to a new long-run equilibrium where short-run outp is equal to and inflation is equal to