1. Are debtors (borrowers) better off with unanticipated inflation or unanticipated deflation? Why? What about lenders? 2. Who is better off? a. Bank of America makes a one-year loan of $100,000 at 10% interest. The inflation rate is 15% for the year. b. Citigroup makes a one-year loan of $100,000 at 5% interest. The inflation rate is 3% for the year. (Hint: For each bank, what is the purchasing power today of the loan payment received in one year? What is the real interest rate earned by each bank?) 3. Using labor supply and demand graphs for both the Keynesian and classical models, show the effects of an increase in the demand for labor. Assume that the classical labor market starts in equilibrium, and that there is involuntary unemployment in the Keynesian labor market. 4. Using the labor market, production function. and AS/AD graphs of the classical model, show the effects of immigration. What are the effects on real wages, the quantity of labor, real GDP, and prices? Explain and show graphically. 5. How do the assumptions of the classical model influence the shape of the classical aggregate supply curve? Show how to derive the classical aggregate supply curve.