2. The Standard IS Curve Suppose that the initial parameters of the IS curve are a = 0,5 = ,7 = 0.02 and the real interest rate is Ro = 0.02 initially. Explain what happens to short-run output in each of the following scenarios (consider each separately). You should be able to determine the percentage change in short-run output in each case. A. B. C. The Fed raises the real interest rate from 2 percent (R = 0.02) to 4 percent (R = 0.04) Suppose a decreases by 1 percentage point and the Federal Reserve holds the real interest rate constant. Let's consider the case in Part A again, where the Fed raises the real interest rate from 2 percent to 4 percent. In this case, however, suppose that 5 = 0. What happens to the output gap in this case? Why is it different from what you computed in Part A?