1. In each of the following scenarios, predict what will happen to (1) employment, (2) real wages, (3) output, (4) the interest rate, and (5) the price level. Draw and show the graphs for all scenarios for full credit.

a. The federal reserve decreases the money supply (M) b. Due to war, a portion of the capital stock has been destroyed c. The government increases spending, although it fully funds that increase by raising taxes (G=T). Assume that government spending is not productive and does not change productivity. d. There is a one-time positive immigration flow (L) 2. Who ultimately pays the inflation tax? Why might this be an attractive way for governments to collect tax revenue? Econ 305 Intermediate Macro