please explain the following questions

Question 7 (10 marks) The monetary policy rule is: i, =a, +r, +0.5(#, -a; )+0.5(Aln], -Al, )where, i is nominal policy interest rate, r is real equilibrium short-term rate, "I" are actual and expected inflation rates, respectively. Y is real and Y* real potential GDP. Assume + is time and In being natural log. Each sub-question carries 212 marks. (a) Suppose inflation expectation is 5% for next year (2 percentage points higher than current rate) and the current rate of interest is 3.5% in real terms. What how does a recession of 8% imply for policy rate if it is currently set at 0.5%? (b) If commercial bank lending rate is set 50 basis points above the policy rate, how much should the commercial bank lending rate be if risk premium is 3%? (c) Restructure the rule for long-run rule in light of neutrality of monetary policy? (d) Discuss why some CBs use policy rules in conducting monetary policy but still employ discretion. Question 8 (10 marks) If bonds demand (Bd) is P = 1100-5Q. bonds supply (Bs) is P = 500+15Q, respective interest rate i* = (F-P)/P, assume F = 1000, money demand is L = 0.8Y-62.5i and real money balance is $1500m with fixed prices. Each sub-question carries 212 marks. (a) Determine the interest rate using bonds market equations. (b) Show financial market dynamics in (BBd), (MsMd) and (ISLM) spaces. (c) If IS was Y= 2240-120r, derive the AD function if MP rule was r = 2 +0.51 (d) Use ADAS to determine RGDP if Phillips Curve was It = 10+ 0.5(Y-Y*) + p, where Y* (Potential RGDP) was 1500 and p (financial friction) was 2%