The Taylor rule: John Taylor of Stanford University proposed the following monetary policy rule: R_ - r = m(pi_t - pi) + n Y_t That is, Taylor suggests that monetary policy should increase the real interest rate whenever output exceeds potential. a. What is the economic justification for such a rule? b. Combine this policy rule with the IS curve to get a new aggregate demand curve. How does it differ from the AD curve we considered in the chapter? Consider the response of short-run output to aggregate demand shocks and inflation shocks.