Draw an IS-LM model in general equilibrium. Show the effect of expan-sionary monetary policy, and then explain and show what adjustment will happen in the long run. Explain the trade-off for this policy in the Keynesianversion and the counterargument from the classical version.

Refer to the diagram to the right. Suppose the economy is in a recession and the Fed pursues an expansionary monetary policy. Using the static AD- AS model, this would be depicted as a movement from OA. C to B. OB. C to D. OC. B to C. OD. A to B. OE. A to E. Price leve A LRAS B D E C Real GDP AD ₁ SRAS AD 3 AD 2

On the LRAS model, if the Aggregate supply decreases, then the price level will__ and the quantity will O Decrease, Decrease Increase, Decrease O Decrease, Increase Increase, Increase During a recession, we would use while in an Inflationary period, we would use O Expansionary Monetary Policy, Contractionary Monetary Policy Retractionary Monetary Policy, Expansionary Monetary Policy O Contractionary Monetary Policy, Expansionary Monetary Policy O Expansionary Monetary Policy, Retractionary Monetary Policy On the LRAS, Aggregate supply is sloped while Aggregate demand is sloped * Downwards, Upwards O Upwards, Upwards O Downwards, Downwards O Upwards, Downwards As the Interest Rate increases, consumption and investment increase. * False O True O O O O O O

A Central Bank is said to have a more hawkish stance when it reacts more aggressively against deviations of inflation from target. Recall that the AD curve is given by: Ýį = ā – bm(T; – ñ), and the AS curve is given by Tt = Tt-1 + ū¥Ýt +ō Knowing this, saying that the Central Bank became more hawkish is equivalent to say: Inflation, AS AD Output, Ỹ O That ā decreased, thus moving down the AD curve. O That b decreased, thus making the AD curve steeper. That ū increased, thus making the AS curve steeper. O That ñ decreased, thus flattening the AD curve. O That the equilibrium inflation moved to below ĩñ. That b decreased, thus making the AD curve flatter. O That ā increased, thus moving up the AD curve. O That ñ increased, thus flattening the AD curve.

What is the economic justifcation for the sticky infation assumption? Whatrole does this assumption play in the short-run model?

Consider the AS-AD and three-equations models of a closed economy. Consider an economy that starts out in steady state when the central bank decides to make the inflation target more ambitious. Analyse the effects of a decrease in the inflation target from ? to . Explain the mechanisms behind the adjustment to the new steady state.

Can you show me a graphical representation of an IS-PC-MR model under the New Keynesian Philips Curve during an inflation shock?

Use the New-Keynesian model with partial sticky prices studied in class to analyse the following shock and policies (use the five-graph diagram to support your answer).a) The Covid-19 pandemic has caused recession in many countries, including the United States, Australia… Analyse the effects of this Covid shock which brings the Australian economy relatively close to the ZLB .b) The Central bank conducted conventional monetary policy to counter the shock. Suppose that due to this monetary policy, the economy is at the ZLB and output is still below potential level. Moreover, due to the intensification of the pandemic with deadly Delta variant, the zero lower bound is binding. Suggest the policy actions to bring output back to potential level.

Consider the classical AS-AD model with misperceptions. Assume that the economy is initially at its general equilibrium. Now, suppose the central bank considers an increase in the nominal money supply that is not anticipated by households or firms.

Suppose the Government wishes to reduce the budget deficit by reducing public spending. (a) Assuming that the monetary authorities hold the money supply constant, explain why the decrease in government spending reduces output more in the Keynesian-cross model than in the IS-LM model.