Part II. Short answer Question 1: Consider the following GDP equation, consumption function, exports, imports and investment function and use them to answer the following questions nZCt-lIt'IGt'I'EXtIMt It _ _ iaib(RT), b>0 17; c EX=0 IM=0 (a) Derive the IS curve as a relation between short run output 17 and the real interest rate gap Rt T". (7 points) (b) Suppose r2" = 0.5 and real interest rate Rt and F are both 1 %. What will be the effect of a 2 percent aggregate demand shock on short run output? Is the nal effect on short run output greater, less or equal to the initial shock? Explain why. (Note: For this question, you should work with the IScurve you derived in part a.) (5 points)