Consider the IS curve 110 40t ty r , where y is output and r is the real interest rate. Inperiod 0 output is 0 5y . Now, suppose that the Central Bank wants to set the period 0nominal interest rate so that period 1 output ( 1y ) is 20% higher compared to 0y . Assumingthat agents form adaptive expectations, what is the nominal interest rate that the Central Bankmust set, if the period 0 inflation rate ( 0 ) is 4%? [50 marks