Question: 4 Jones, Chapter 13, Exercise 11 Consider a simplied version of the Taylor rule, where monetary policy depends only on shortrun output: R1 f :

4 Jones, Chapter 13, Exercise 11 Consider a simplied version of the Taylor rule, where monetary policy depends only on shortrun output: R1 f : of}. (a) Draw an ISMP diagram, but instead of the usual MP curve, plot the simplified version of the Taylor rule. You might label this curve MPH for "monetary policy rule." (13) Now consider the effect of a positive aggregate demand shock in the IS MPR diagram. (An example might be a. fiscal stimulus.) Compare and contrast the effect of this shock on the economy in the standard ISMP diagram versus the ISMPR diagram. Why is the result different? {c} Economists refer to the result on the ISMPR diagram as "crowding out.II What gets crowded out and why

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