Question: the question is below The policy reaction function (in general form) for a Central Bank is as follows. Y - Y r = base interest

the question is below

The policy reaction function (in general form) for a Central Bank is as follows. Y - Y r = base interest rate + a Y* + b ( It - IT ) Note: r denotes the real interest rate, Y is the actual output, Y* is the potential output, It denotes actual inflation rate and it denotes target inflation rate. a and b are both between 0 and 1. Suppose an economy is experiencing a higher inflation rate as well as a recessionary (Y

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