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please show work, trying to learn how to do this (35pts) For the following questions assume that b=0.5 and v=1 and that inflation is normally
please show work, trying to learn how to do this
(35pts) For the following questions assume that b=0.5 and v=1 and that inflation is normally at 2% and that the natural rate of unemployment is 4%. Also assume that initially the real interest rate equals the marginal product of capital, which is 3%. Now, the Fed decided to change its implicit target inflation rate from 2% (as above) to 3%. a. (5pts) What is the lowest level the Fed can lower the real interest rate to? b. (5pts) Show with an equation and a graph what happens to output at time t. c. (5pts) What is inflation and unemployment at time t? d. (5pts) What will the Fed do at time t+1 ? What will the real and nominal rate be? (35pts) For the following questions assume that b=0.5 and v=1 and that inflation is normally at 2% and that the natural rate of unemployment is 4%. Also assume that initially the real interest rate equals the marginal product of capital, which is 3%. Now, the Fed decided to change its implicit target inflation rate from 2% (as above) to 3%. e. (5pts) What is the lowest level the Fed can lower the real interest rate to? f. (5pts) Show with an equation and a graph what happens to output at time t. g. (5pts) What is inflation and unemployment at time t? h. (5pts) What will the Fed do at time t+1 ? What will the real and nominal rate be? i. (5pts) Show the effect of question 2d on the economy. Use a graph and an equation to show what output will be. j. (5pts) What will inflation and unemployment be at time t+1Step by Step Solution
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