I have the correct answers. All i want is an in depth explanation for how to solve Part C and Part D. NOT A OR B. Please just explain how to solve part A and D thank you Assume that the economy of Cranberry Republic is characterized by the following IS-LM-PC model:Phillips curve: Tą = m° + 0.0006(Y; - Yn)where t, is the inflation rate at year t, ° is the level of inflation that people expect at the beginning of year t, Y; is the actual level ofoutput and Y, is the potential output.IS equation: Y; = 1,450 - 5,000 ręLM equation: rę = FSuppose that people form their expectation according to:= Tt-1a. Suppose last year inflation rate n 1 = 3% and the potential output Y, = 1,000. If the Fed chooses interest rate r = 10%, what is the actualoutput Y and the inflation rate n at year t. Is this economy booming or in a recession?Answer:At year t, Y =[ Select][ Select ]%; this economy is [ Select ]; T =b. At year t+1, if the Fed is trying to bring the output back to the potential output, what policy should it use, expansionary or contractionary?What is the interest rate the Fed should target to bring the output back to the potential output?Answer:The Fed should use [ Select]monetary policy. The Fed should target the real interest rate atr =[ Select ]%.c. What is the level of inflation at the potential output?Answer:When the output is at the potential output, =[ Select ]%.d. How can the Fed achieve the potential output with inflation equal to 1%? Show all your work with computation.Answer:At year t+2, if the Fed set the real interest rate at r =[ Select ]v %, the output will be at Y =[ Select]and the inflation rate n =[ Select ]%. At year t+3, the Fed can now set the real interest rate back at r found in part (b) to achieve potential output at an inflation rate of 1%.Answer 1:Correct!950Answer 2:Correct!Answer 3:Correct!in a recessionAnswer 4:Correct!expansionaryAnswer 5:Correct!9Answer 6:Correct!Answer 7:Correct!8.66Answer 8:Correct!1017Answer 9:Correct!1

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Answered: IS at is the ut and Yn is the potential…

Business

Economics

IS at is the ut and Yn is the potential output.

Brief Principles of Macroeconomics (MindTap Course List)

8th Edition

ISBN:9781337091985

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter17: The Short-run Trade-off Between Inflation And Unemployment

Section17.3: Shifts In The Phillips Curve: The Role Of Supply Shocks

Problem 3QQ

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