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 ## Understanding the Economy of Cranberry Republic through the IS-LM-PC Model### Key Equations1. **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:** \[ Y_t = 1,450 - 5,000 \times r_t \] - \(r_t\): Real interest rate3. **LM Equation:** \[ r_t = r^* \] - \(r^*\): Equilibrium (natural) real interest rate### Expectations Formation- Expected inflation is formed as: \[ \pi_t^e = \pi_{t-1} \]### Questions#### a. Output and Inflation Analysis- **Assumption:** - Last year’s inflation rate (\(\pi_{t-1}\)) = 3% - Potential output (\(Y_n\)) = 1,000 - Fed’s chosen interest rate (\(r_t\)) = 10% - **Task:** - Calculate the actual output \(Y\) and inflation rate \(\pi\) at year \(t\). - Determine whether the economy is booming or in recession. #### b. Monetary Policy at Year \(t+1\)- **Objective:** - Return the output to potential (\(Y_n\)).- **Task:** - Decide whether the Fed should use expansionary or contractionary monetary policy. - Target the real interest rate.#### c. Inflation at Potential Output- **Task:** - Determine inflation rate (\(\pi\)) when output is at potential \(Y_n\).#### d. Achieving Potential Output with 1% Inflation- **Objective:** - Set the real interest rate to achieve potential output with an inflation rate of 1%.- **Task:** - Compute and show the steps.### Explanation of DiagramWhile the visual outlines the equations and questions, detailed calculations provide the ### Transcription and Explanation#### Educational Context: Adjusting the Real Interest RateAt year t+3, the Federal Reserve (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%.---#### Answers and Explanations:- **Answer 1:** 950 - This could refer to a monetary value or an economic indicator relevant to the scenario.- **Answer 2:** 0 - This may indicate a value such as a growth rate or the level of change in a parameter.- **Answer 3:** in a recession - This describes the economic condition where there is a decline in GDP or economic activity over an extended period.- **Answer 4:** expansionary - Refers to policies or conditions that aim to increase economic growth and expand economic output.- **Answer 5:** 9 - Could denote a percentage, rate, or other quantitative economic figure.- **Answer 6:** 0 - Another possible static or unchanged economic value.- **Answer 7:** 8.66 - Similar to Answer 5, this might refer to a specific economic rate or measurement.- **Answer 8:** 1017 - Could represent an economic output, monetary figure, or other numerical result.- **Answer 9:** 1 - Likely corresponds to a target inflation rate or a similar economic target.Each answer marked "Correct!" suggests these are verified responses to previous economic calculations or predictions.

Answered: Image /qna-images/answer/2a2d5bf1-64da-4266-a525-7a9bd7a6766e.jpg

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

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

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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