1. U.S. Money Markets are now pricing in 100% probability of a 25 basis points increase in the Federal Reserve Rate by December 2022 versus 88% probability before the data on CPI was released.

Use the economic theory (use all models we have studied) to explain what would be the macroeconomic effects of this monetary policy. Explain the consequences for the final economy (real money balances market, IS-LM, level of national income and level of prices). Draw all the graphs and use the models (equations). Explain.

2. Biden marked his 100th day in office to promote his $4 trillion spending proposals designed to redistribute the nation's wealth. the American Jobs Plan, a sweeping $2.3 trillion package is designed to fix the nation's crumbling roads and bridges, create jobs and tackle climate change; and the American Families Plan, a $1.8 trillion plan to fund billions of dollars on child care, prekindergarten, paid family leave and tuition-free community college. The President said he would pay for the packages by increasing taxes on wealthy Americans and corporations.

a. Determine the effects of the policy on Keynesian cross and loanable funds market. Explain, use graphs and math.

b. What would be the effect on national income and interest rate in the short run. Use IS-LM, graph, math and explain.

c. What might happen with the level of prices? Use AD-AS model and use graph.

d. How investment in infrastructure can affect productivity of capital and productivity of

labor? Use the graphs, equations and explain.