I need help especially with B-D, thank you! This is for a intermediate Macro class. 1. (IS-LM and Aggregate Demand] Consider the equation FY = MV which essentially implies that every transaction in the economy must be paid with money. Money velocitycan in turn be written as a function of the nominal interest rate V = LE}. a] Assume L(i} = 23′ and E [if] = U. derive the money demand equation with r as a func-tion of Y, M and P. {Hint: what is the relation between T and 3′). Assume money supply is fixed at a level 111, make a graph with ‘r on the Y-axis and M on the X—axis showing theequilibrium values of r and M. b) Let investment and consumption be fiven respectively by HT) 2 f — mi" and C =C + ng. p; L“? U and 1 2} pg 2:? 0. Government expenditure G is exogenously determined.Find the IS curve by expressing “r as a function of Y (Hint: Use the aggregate resourceconstraint for this economy). Combine the IS and LM curves to find the equilibrium values of r and Y. Make a graph with both the IS—LM curves, label the slopes and the equilibriumvalues. In the IS—LM model we are assuming an economy in the short run with fixed prices (theslope of the LM curve changes when prices change). c} Combine the IS and LM curves to express P as a function of Y. This is the ADequation. Consider the short-run case where prices are completely fixed at a level P. Makea graph with the AD, SEAS and LRAS curves assuming the economy is in a long-run equi-librium. [1} Assume the government increases expenditure by AG funded through a deficit. Show graphically the effect on P, Y and 1" using both the AD—AS and IS-LM models. Computethe changes in Y and r.
September 3, 2020
Technology is viewed by economists as a source of comparative advantage but technological advantage is often transitory.
September 3, 2020

I need help with all four parts of this question. Thank you!

3. ( Policy intervention and the long – run ) Consider the AD – AS modelAD : 4 = m – ptySRAS : " = alp – {\pli + + +^The variable * represents a shack with Ely] = 0. Expectations on prices are formed followinga behavioral rule Elp) = 71 – 1. Money evolves according toMH = MIX MIL_ITEM, FLEI] = 0"The central bank controls money supply by choosing `.. The economy is currently in along – run equilibrium with E. = O and * = 0 for all t.al Unexpectedly , there is a one – time shock*{, = 5 . Show in a graph the shift in aggregatedemand and the following shift in short – run aggregate supply . Label the magnitude of bothshifts .b ) Compute values of " and " ( you can do it in terms of the original LR equilibriumprice ) in the long – run ( assuming A; = O for all 😉 . What value of A should the central bankchoose in order to keep output stable ( in the short – run ) following the shock ? How does thispolicy affect the long – run outcomes ?"C ) Back in our original long – run equilibrium there is an unexpected one – time shock y = 5 .Show in a graph the shift in the curves at the moment the shock hits and the following shift*in SRAS !* ) Compute the values of y and p ( you can do it in terms of the original LR equilibriumprice ) in the long -run . What value of A (assuming A; = O for all ; ) should the central bankchoose in order to keep output stable ( in the short – run ) following the shock?" How does thispolicy affect the long – run outcomes !"

KM
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