3. Suppose that the price level is fixed in the short run so that the economy doesn’t reach general equilibrium immediately after a change in the economy. For each of the following changes, what are the short-run effects on the real interest rate and output? Assume that, when the economy is in disequilibrium, only the labor market is out of equilibrium; assume also that for a short period firms are willing to produce enough output to meet the aggregate demand for output.

a. A decrease in the expected rate of inflation.

b. An increase in consumer optimism that increases desired consumption at each level of income and the real interest rate.

c. A temporary increase in government purchases.

d. An increase in lump-sum taxes, with no change in government purchases (consider both the case in which Ricardian equivalence holds and the case in which it doesn’t).

e. A scientific breakthrough that increases the expected future MPK.