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Assume in an economy the IS and MP curves are the following. IS = 22-1.57-21+ 2G MP => r= 1.0 +0.5x The home central bank uses the interest rate as its policy instrument. Initially, the inflation rate is is 5%. Taxes and government spending both equal 2. A. What is the level of output Y, and interest rate? (1 point) B. There is now a foreign demand shock, such that the IS curve shifts left by 1.5 units at all levels of the interest rate. What is the new IS curve? The government asks the central bank to stabilize the economy at full employment. To stabilize and return output back to the desired level, according to this new IS curve, by how much must the interest rate be changed? (1 point) C. Now suppose if inflation falls from 5% to 3% what will be the impact on output and what should the central bank do to stabilize the economy at the initial level of output? (1.5 points) D. Return to part (B). Now assume that the central bank refuses to change the interest rate you calculated in part A. In this case, what is the new level of output? And if the government decides instead to use fiscal policy to stabilize output, then according to the new IS curve, by how much must government spending be increased to achieve this goal? (1.5 points)