The question is as following:

c.) (3 points) Assume the Federal Reserve sets interest rates according to the Taylor Rule below: . Yt_Y lt=r'+nt+n(nt_n')+l'( l7 ) Suppose the Fed plans to increase the nominal interest rate, it, by 3 percentage points after estimating that the increase in government spending would change output by 6 percent. What does this imply about the value of the parameter (by? cl.) (5 points) The Fed then learns that ination is expected to increase from 2 to 4- percentage points. I If r' = 2, (pa = 0.5, and n" = 2, what should we expect the Federal Reserve to set as the new nominal interest rate? (NOTE: include the effects of the anticipated change in output from part (c) in your answer.) 0 What will be the implied real interest rate, rt? (Hint: rt is not the same as the natural rate, r')