[acheron]

That should be “God Rest You Merry”. ‘Ye’ is a subject pronoun. The subject of the phrase is ‘God’.

Now diagram the sentence five times, due in class next week.

[doomrobo]

Can't it be read as "God rest the merry"? That parses just fine.

[a1369209993]

In that case it's a typo, and should be spelled "God Rest Þe Merry", with a latin^Wenglish capital letter thorn, rather than a Y, which was used as a substitute when using early german printing type that didn't include the thorn character.

Unless you're actively trying to write in Ye Olde Butcherede Englishe, in which case go ahead.