Question: note: Please send me Answer in typed form strictly prohibited hand written solution and send me finally Answer separtely Question 6 [12 marks] If expected

note: Please send me Answer in typed form strictly prohibited hand written solution and send me finally Answer separtely

Question 6 [12 marks] If expected inflation is 3.5%, current inflation is 2.2% and the real equilibrium interest rate is 3.1%, using the Taylor rule, determine: a) The impact of a 5% recession on short term nominal policy rate (4 marks) b) If the wedge between policy and commercial bank lending rate is 2%, determine the market (nominal) lending rate? (4 marks) c) The real profit margin of banks if liquidity premium was 5% (4 marks)

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