Question: please show work, trying to learn how to do this (35pts) For the following questions assume that b=0.5 and v=1 and that inflation is normally

please show work, trying to learn how to do this (35pts) Forplease show work, trying to learn how to do this

(35pts) For the following questions assume that b=0.5 and v=1 and that inflation is normally at 2% and that the natural rate of unemployment is 4%. Also assume that initially the real interest rate equals the marginal product of capital, which is 3%. Now, the Fed decided to change its implicit target inflation rate from 2% (as above) to 3%. a. (5pts) What is the lowest level the Fed can lower the real interest rate to? b. (5pts) Show with an equation and a graph what happens to output at time t. c. (5pts) What is inflation and unemployment at time t? d. (5pts) What will the Fed do at time t+1 ? What will the real and nominal rate be? (35pts) For the following questions assume that b=0.5 and v=1 and that inflation is normally at 2% and that the natural rate of unemployment is 4%. Also assume that initially the real interest rate equals the marginal product of capital, which is 3%. Now, the Fed decided to change its implicit target inflation rate from 2% (as above) to 3%. e. (5pts) What is the lowest level the Fed can lower the real interest rate to? f. (5pts) Show with an equation and a graph what happens to output at time t. g. (5pts) What is inflation and unemployment at time t? h. (5pts) What will the Fed do at time t+1 ? What will the real and nominal rate be? i. (5pts) Show the effect of question 2d on the economy. Use a graph and an equation to show what output will be. j. (5pts) What will inflation and unemployment be at time t+1

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