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1. The IS-MP-PC Model This question refers to the ISMP-PC model, described by the IS curve yg =3}: a(it 1Ttr*)+e the monetary policy rule it ='r*+1r*+7r(1rt7r*) and the Phillips curve: 7F: =1r+ry(yty;')+ef where y; is output, 1T3 is ination, it is the interest rate, 7r* is the central bank's ination target and o: and 7 are assumed to be positive. (a) Describe what the parameters a, 7, ,6?\" 'r'\" and if\" represent. (b) Show how to derive the ISMP curve and explain what determines its position and whether it slopes upwards or downwards. (c) Show how to derive a solution for ination as function of expected ination and the central bank's ination target. Discuss the factors determining the coeicient on expected ination. (d) How do the dynamics of the model change when 5.5 moves from being greater than one to slightly less than one? What is the explanation for the change in the behaviour of the model? (e) How do you adapt the model to account for the zero lower bound on interest rates? How would your answer change if the central bank adopted a Taylorstyle rule with the interest rate dependening on an output gap as well as ination