Referencing Styles : Not Selected Assume that the central bank can directly observe the aggregate demand shock and follows the following monetary policy rule: (*) ̅ ̅ , 0 Note that ,,, tt Rr   , and are defined as in lectures. , and ̅ are parameters. (a) Derive the AD curve in the case when the central bank uses the above rule. What would be sensible restrictions on parameter ̅ (possibly depending on other parameters)? If you were a central banker which value would you choose for ̅ (again this can depend on other parameters)? Why? (7 marks) AS schedule is represented by the following equation: ̅ ̅ Inflation expectations are a mixture of backward looking expectations and expectations anchored to the inflation target: ̅ 1̅ The IS schedule is ̅