8. Suppose the Fed is concerned that deflation will harm the economy over the long run. Use the IS-MP model (including the output-gap Philips Curve) to analyze how the Federal reserve would fight deflation. a) Use an IS-MP model graph to show long-run macroeconomics equilibrium with a deflation rate of 2%. (5 points) b) If the Fed wants the economy to return to a long-run equilibrium with an inflation rate of 2%, how should it change its target for the federal funds rate on an IS-MP graph, including the Phillips curve. What happens to the output gap and to the inflation rate? (5 points) c) Use an IS-MP graph, including the Phillips curve, to illustrate how the economy returns to long-run equilibrium at the higher inflation rate. (5 points) 8. Suppose the Fed is concerned that deflation will harm the economy over the long run. Use the IS-MP model (including the output-gap Philips Curve) to analyze how the Federal reserve would fight deflation. a) Use an IS-MP model graph to show long-run macroeconomics equilibrium with a deflation rate of 2%. (5 points) b) If the Fed wants the economy to return to a long-run equilibrium with an inflation rate of 2%, how should it change its target for the federal funds rate on an IS-MP graph, including the Phillips curve. What happens to the output gap and to the inflation rate? (5 points) c) Use an IS-MP graph, including the Phillips curve, to illustrate how the economy returns to long-run equilibrium at the higher inflation rate. (5 points)