2. Demonstrate graphically using a simple two-graph model (the labor market and the production function) that if wages and prices are flexible, the economy will get to its full employment level of output (this is just asking for the model we did in part 2 of the class). Now show that if wages and prices are "sticky"particularly the wage is stuck above equilibriumthe economy will have unemployment and hence a level of real GDP less than its potential.

3. Since your graphs from question two demonstrate that the assumption of wage/price flexibility or stickiness is of major importance to the broader question of the proper role of government in the economy, in a short paragraph, state the Keynesian case for why (what reasons) wages may be "sticky" rather than flexible (you should basically lay out the reasons noted in class to build this case).