a) Using the simple monetary rule, show how the Fed can mitigate the impact of the financial shock on output by changing its inflation target away from = 2%. Use both the IS-MP and AS/AD diagrams and explain. Should the Fed raise or lower ? b) Use numbers to compute the change in inflation and output. Assume the shock to f equals 4% and lasts one period. Let 5 = 1/2, m = 1/2,0 = 1/2, and F= 296. Initial inflation equals 2% and a = 0. Determine the fed funds rate the Fed needs to set to keep short-run output equal to zero. Give both the real and nominal fed funds rates. c) Suppose the shock f is larger and equals 6%. What is the nominal fed funds rate that will keep short- run output equal to zero, now? Can the Fed do this? Explain what happens if the Fed cannot set a nominal interest rate less than zero. d) Briefly, describe one policy the Fed might take in circumstances such as you found for part c) when f = 6%-