PART B: Long Questions Long Question 1: (70 points) Consider the short run model of Chapters 1 1 and 12. The national income identity is given by Yt = Ct + + Gt + EXt - IMt (1) where Yt is real actual output, Ct is consumption, It is investment, Gt is government spending, EXt is exports, and IM, is imports (all in period t). Assume that the "demand" variables are given by: Ct / = ac (2) Gt/ . = ag (3) EXty = dex ( 4 ) IMty = aim (5) "/. = at - b(Re - F) (6) Where ac , ag , dex , dim , di , g and b are given positive parameters. Moreover, Yt represents potential output, Y, is short-run output, R, is the real interest rate, and r is the marginal product of capital or just the long run interest rate. %VERSION B d) Now assume that in reaction to the shock from part c) that the Fed changes the interest rate to stabilize output at Y = 0. By how much does the Fed need to change interest rates to do this? (10 points)