The medium-run equilibrium is characterized by four conditions: Output is equal to potential output Y = Yn. The unemployment rat
e is equal to the natural rate u = un. The real policy interest rate is equal to the natural rate of interest rn where aggregate demand equals Yn. The expected rate of inflation pe is equal to the actual rate of inflation p. a. If the level of expected inflation is formed so pe equals p1-12, characterize the behavior of inflation in a mediumrun equilibrium. b. If the level of expected inflation is pQ , what is the level of actual inflation in the medium-run equilibrium? c. Write the IS relation as Y = C1Y - T2 + I1Y, r + x2 + G. Suppose rn is 2%. If x increases from 3 to 5%, how must the
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