1 SECTION C: Complicated questionsConsider the Taylor Rute for real interest rate:r-r' = a(n - n") + B(Y – Y")The goods market equilibrium is described by:Y = Ca +c (Y – NT) + l, - br + Ggwhere NT- net taxes, 0< c, <1- marginal propensity to consume, b> 0 - interest rate sensitivity ofinvestment demand:; Co, lo. Go, - autonomous consumption, investment, government purchases.C1.Derive the functional form for the AD schedute in the (Y, n) space. HINT: 1(Y)Show algeb. .cally and graphically how the AD slope depends on the following parameters (see below).lustrate your answers in the diagram that links the rr, IS and AD schedules.C2.C3.C4.C5.

Taylor rule is simple monetary policy rule that prescribes how a central bank should adjust its…

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Brief Principles of Macroeconomics (MindTap Course List)

8th Edition

ISBN:9781337091985

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter16: The Influence Of Monetary And Fiscal Policy On Aggregate Demand

Section: Chapter Questions

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