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3. (25 points] This question asks you to study the consequences of the zero lower bound. It is especially relevant for the country of Japan, where the nominal interest rate and inflation have both been near or at zero for the past quarter century. Suppose that, because of the zero lower bound problem, the MP curve takes the following form: r['Jt]='rr, TEE 1% = 1% + 0.50: 1%),11 2 1%. Q! Graphically derive the AD curve given the above MP curve. b. Suppose that the economy is in a longrun equilibrium with 0.5% inflation. Depict this equilibrium on an ADAS picture, being careful to include any other longrun equilibria. c. Suppose that the central bank eases monetary policy, so that the MP curve takes the form: r[1t]='rr, TIE 2% = 2% + 9.50: 2%),11 3: 2%. Does this change in monetary policy eliminate the possibility ofa longrun equilibrium in which inflation equals 0.5%? Explain your answer using an ADAS picture. (Hint: carefully rederive the AD curve, given the change in the MP curve. Assume that the LRAS curve is the same as in part {b}.)