Question 1 First, we will derive the long-run equilibrium values of output Y, consumption C, private and public savings Sprivate and Spublic, investment /, the real and nominal interest rates (r, i) and price P, before and after the medicine news shock. a. Explain how the long-run values of (r, i) are determined before the medicine news shock. [3 marks] b. Which, if any, of the graphs from Appendix A best depicts the long-run change in the interest rate(s) due to the medicine news shock? Explain. [3 marks] c. Explain how the long-run values of (Y, P) are determined before the medicine news shock. [3 marks] d. Which, if any, of the graphs from Appendix B best depicts the long-run change in output and price due to the medicine news shock? Explain. [3 marks] e. Fill in the following table with the answers-there are 16 numbers to solve for. Y C Sprivate Spublic I r (%) i (%) P before: after: [16 marks]C = 100 + 0.5 . (Y -T) I = 340 - 1000 - r where Y is real output and r is the real interest rate. Government purchases and taxes are G = 150, T = 100. The LM curve (money market equilibrium) curve is M Y P = 22 where P is the price level and i is the nominal interest rate. The Central Bank (CB) is initially supplying M = 5000 units of money, and expected inflation is re = 0.03. Assume that the long-run equilibrium level of output is Y = 1000. Short-run equilibrium output is initially at the same level (Y = 1000). Suddenly, news of a new oral Covid medicine raises expected inflation to * = 0.08