Suppose that in an economy the demand for goods and service equation (IS) is given by...

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Suppose that in an economy the demand for goods and service equation (IS) is given by Y = Y-(r-p)+e, and that the Fisher equation is given by i = re+E, +1 with adaptive expectations En+1 = T. Furthermore, the Phillips curve is defined as T = E-1Tt +0.25(Y-Y)+V. However, the central bank has the wrong estimates of the equilibrium real interest rate p. That is; it follows the Taylor rule of the form %3D ių = T +p +0.5(7, – *) +0.5(Y, - Y,) where p* > p, where p is the true equilibrium real interest rate. Solve for long run equilibrium under this policy rule. Explain in words the intuition behind this solution. Suppose that in an economy the demand for goods and service equation (IS) is given by Y = Y-(r-p)+e, and that the Fisher equation is given by i = re+E, +1 with adaptive expectations En+1 = T. Furthermore, the Phillips curve is defined as T = E-1Tt +0.25(Y-Y)+V. However, the central bank has the wrong estimates of the equilibrium real interest rate p. That is; it follows the Taylor rule of the form %3D ių = T +p +0.5(7, – *) +0.5(Y, - Y,) where p* > p, where p is the true equilibrium real interest rate. Solve for long run equilibrium under this policy rule. Explain in words the intuition behind this solution.