Suppose that the consumption and investment functions are, respectively, C=10+0.8(YT),I(r)=100500r That is, MPC is 0.8 . Furthermore, the government is currently implementing a policy G=T=50 and the Central Bank follows the following policy rule R=r+m(T) where r is the long run real interest rate and assume m==0.5. Assume the long run level of output is Y=500, that actual inflation, inflation expectations and inflation target are all the same with e=T==0.02 1 Warm-Up 1. Derive the IS and MP curves: IS:Y=_+r 2. The equilibrium real interest rate r is %. Real output is and consumption and investment are and , respectively