Question 4 [6 points] The central bank wants to maintain ination at a xed target and to see the economy operating at potential output It sets its overnight rate (our) based on the following nile onr= 4 5+4,2(Tr7n")+ DSIWiYPWp1K1DD a) If the economy is operating at potential output and the ination rate is at the Bank's target, 11', what is the Bank's onr setting? Note: Keep as much precision as possible during your calculalions. Your nal answer should be accurale to at least two decimal places. b) Suppose a boom in a major trading partner increases demand for domestic exports, increases AD and increases real income Y : Yp : 990 to Y : 1,069.2. How would the central bank respond (+ for increase, , for decrease)? lBasis point change in our : ll c) Altemalively, suppose a rise in labour productivrly growth pushed the ination rate down by 0.4 percent How would the central bank respond (+ for increase, , for decrease)? Basis point change in our