Output falls by 4%. If the Fed wants to fully mitigate the drop in output, what inflation rate should they target?

3. Monetary Policy Using the Phillips Curve. 20 points In recent years, people have had fairly constant expectations of inflation around 2 percent. We will explore how people's expectations affect the Fed's policy behavior. Suppose the Phillips Curve is given by T - 717 - B(4, - 1) +V and short-run fluctuations in output and employment are captured by this version of Okun's Law %AY = -2(up - u) Assume that v = 0, B - 0.5, and u = 4