I have the answers. What I want is an in-depth explanation of the answers and how to get them **Title: Understanding the Economy of Cranberry Republic through the IS-LM-PC Model****Overview:**The economy of Cranberry Republic is analyzed using an IS-LM-PC model, described by the following equations:1. **Phillips Curve:** \[ \pi_t = \pi_t^e + 0.0006(Y_t - Y_n) \] - $ \pi_t $: Inflation rate at year $ t $ - $ \pi_t^e $: Expected inflation at the beginning of year $ t $ - $ Y_t $: Actual level of output - $ Y_n $: Potential output2. **IS Equation:** \[ Y_t = 1,450 - 5,000r_t \]3. **LM Equation:** \[ r_t = r^* \]**Expectations:**The expectation formation is given by:\[\pi_t^e = \pi_{t-1}\]**Questions and Analysis:****a. Assessing Economic Booms or Recessions:**- Suppose last year's inflation rate $ \pi_{t-1} = 3\%$ and the potential output $ Y_n = 1,000 $. - If the Federal Reserve sets an interest rate $ r_t = 10\% $, determine the actual output $ Y $ and the inflation rate $ \pi $ at year $ t $.- Assess whether the economy is in a boom or recession.**Answer:**- Output $ Y $ and inflation $ \pi $ are calculated based on selected conditions.- Decide if the economy is booming or in recession.**b. Fed’s Policy and Interest Rate Adjustment:**- At year $ t+1 $, if the Fed wants to bring output back to potential, what policy should it use?- Determine the appropriate interest rate for goal attainment.**Answer:**- Choose between expansionary or contractionary monetary policy.- Target real interest rate $ r $.**c. Inflation at Potential Output:**- Find the inflation level when output is at the potential.**Answer:**- Inflation $ \pi $ when $ Y = Y_n $.**d. Achieving Potential Output with 1% Inflation:**- Illustrate how the Fed can achieve this condition. ** The task involves setting the real interest rate to achieve potential output at an inflation rate of 1%. The answers to the given questions are as follows:1. **Answer 1:** 9502. **Answer 2:** 03. **Answer 3:** in a recession4. **Answer 4:** expansionary5. **Answer 5:** 96. **Answer 6:** 07. **Answer 7:** 8.668. **Answer 8:** 10179. **Answer 9:** 1Each answer is marked correct and corresponds to specific parts of the task regarding monetary policy and economic conditions.

since you have asked a multipart question and according to our policy we can only solve the first 3…

Assume that the economy of Cranberry Republic is characterized by the following IS-LM-PC model: Phillips curve: = ° + 0.0006(P; - Yn) where n, is the inflation rate at year t, 7° is the level of inflation that people expect at the beginning of year t, Y; is the actual level of output and Y, is the potential output. IS equation: Y; = 1,450 - 5,000 rt LM equation: rę = F Suppose that people form their expectation according to: T = Tt-1 a. 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 actual output 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 ] 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 at r = [ Select ] %. c. What is the level of inflation at the potential output? Answer: When the output is at the potential output, T = [ Select]

Assume that the economy of Cranberry Republic is characterized by the following IS-LM-PC model: Phillips curve: = ° + 0.0006(P; - Yn) where n, is the inflation rate at year t, 7° is the level of inflation that people expect at the beginning of year t, Y; is the actual level of output and Y, is the potential output. IS equation: Y; = 1,450 - 5,000 rt LM equation: rę = F Suppose that people form their expectation according to: T = Tt-1 a. 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 actual output 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 ] 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 at r = [ Select ] %. c. What is the level of inflation at the potential output? Answer: When the output is at the potential output, T = [ Select]

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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I have the answers. What I want is an in-depth explanation of the answers and how to get them

**Title: Understanding the Economy of Cranberry Republic through the IS-LM-PC Model**

**Overview:**
The economy of Cranberry Republic is analyzed using an IS-LM-PC model, described by the following equations:

1. **Phillips Curve:**
\[
\pi_t = \pi_t^e + 0.0006(Y_t - Y_n)
\]
- $ \pi_t $: Inflation rate at year $ t $
- $ \pi_t^e $: Expected inflation at the beginning of year $ t $
- $ Y_t $: Actual level of output
- $ Y_n $: Potential output

2. **IS Equation:**
\[
Y_t = 1,450 - 5,000r_t
\]

3. **LM Equation:**
\[
r_t = r^*
\]

**Expectations:**
The expectation formation is given by:
\[
\pi_t^e = \pi_{t-1}
\]

**Questions and Analysis:**

**a. Assessing Economic Booms or Recessions:**
- Suppose last year's inflation rate $ \pi_{t-1} = 3\%$ and the potential output $ Y_n = 1,000 $.
- If the Federal Reserve sets an interest rate $ r_t = 10\% $, determine the actual output $ Y $ and the inflation rate $ \pi $ at year $ t $.
- Assess whether the economy is in a boom or recession.

**Answer:**
- Output $ Y $ and inflation $ \pi $ are calculated based on selected conditions.
- Decide if the economy is booming or in recession.

**b. Fed’s Policy and Interest Rate Adjustment:**
- At year $ t+1 $, if the Fed wants to bring output back to potential, what policy should it use?
- Determine the appropriate interest rate for goal attainment.

**Answer:**
- Choose between expansionary or contractionary monetary policy.
- Target real interest rate $ r $.

**c. Inflation at Potential Output:**
- Find the inflation level when output is at the potential.

**Answer:**
- Inflation $ \pi $ when $ Y = Y_n $.

**d. Achieving Potential Output with 1% Inflation:**
- Illustrate how the Fed can achieve this condition.

**

The task involves setting the real interest rate to achieve potential output at an inflation rate of 1%. The answers to the given questions are as follows:

1. **Answer 1:** 950
2. **Answer 2:** 0
3. **Answer 3:** in a recession
4. **Answer 4:** expansionary
5. **Answer 5:** 9
6. **Answer 6:** 0
7. **Answer 7:** 8.66
8. **Answer 8:** 1017
9. **Answer 9:** 1

Each answer is marked correct and corresponds to specific parts of the task regarding monetary policy and economic conditions.

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