30The questions are attached.

Part 2: True or False questions with justification (30 points) Evaluate carefully each of the following statements. Decide if they are True, or False. You must explain clearly the reason(s) why the statement is true or false. You should provide a pre- cise justification, including the transmission mechanisms using words and graphs if needed. Your mark will depend on the quality of your response. 1. While monetary policy can be effective at increasing the level of output beyond its natural level in the short run, it becomes ineffective in doing so in the medium run. (5 points) 2. Consider anopen economy with fixed prices. If the government spending and taxes in- crease by the same amount, this will not have any impact on net exports since the interest rate would not change. (5 points) 3. The aggregate supply relation suggests that an increase in output leads to an increase in the price level. (5 points) 4. Consider a closed economy with fixed prices. Suppose that the government implements a fiscal consolidation policy. If the central bank wants to counteract the effect of the govern- ment policy on output, it must implement a contractionary monetary policy. (5 points) 5. Consider an open economy with flexible prices and flexible exchange rate. If the govern- ment reduces its spending, this will have a positive impact on net exports and could have a negative impact on the output of its trade partners. (5 points) 6. Consider a closed economy with fixed prices. An increase in government spending de- creases investment expenditures. (5 points) 7. The short-run effects of a change in the money supply on output is reduced when the IS curve becomes steeper? (5 points) 8. Bonus question: Consider a closed economy where government spending is endogenous in the sense that government must spend all its tax revenue. The latter is a fixed propor- tion f of output: G = fY. An increase in the marginal tax rate, t, will reduce equilibrium output. (2 points)Part 2: True or False questions with justification (30 points) Evaluate carefully each of the following statements. Decide if they are True, or False. You must explain clearly the reason(s) why the statement is true or false. You should provide a pre- cise justification, including the transmission mechanisms using words and graphs if needed. Your mark will depend on the quality of your response. 1. While monetary policy can be effective at increasing the level of output beyond its natural level in the short run, it becomes ineffective in doing so in the medium run. (5 points) 2. Consider anopen economy with fixed prices. If the government spending and taxes in- crease by the same amount, this will not have any impact on net exports since the interest rate would not change. (5 points) 3. The aggregate supply relation suggests that an increase in output leads to an increase in the price level. (5 points) 4. Consider a closed economy with fixed prices. Suppose that the government implements a fiscal consolidation policy. If the central bank wants to counteract the effect of the govern- ment policy on output, it must implement a contractionary monetary policy. (5 points) 5. Consider an open economy with flexible prices and flexible exchange rate. If the govern- ment reduces its spending, this will have a positive impact on net exports and could have a negative impact on the output of its trade partners. (5 points) 6. Consider a closed economy with fixed prices. An increase in government spending de- creases investment expenditures. (5 points) 7. The short-run effects of a change in the money supply on output is reduced when the IS curve becomes steeper? (5 points) 8. Bonus question: Consider a closed economy where government spending is endogenous in the sense that government must spend all its tax revenue. The latter is a fixed propor- tion f of output: G = fY. An increase in the marginal tax rate, t, will reduce equilibrium output. (2 points)Use your knowledge of cost functions to calculate the missed cost data in the accompanying table. Round your answers to two digits after the decimal. Marginal Fixed Variable Total Average fixed Average variable Average total Quantity cost cost cost cost cost cost cost 0 1 $40.00 2 $64.00 3 $105.00 A $50.00 $412.00 What is the total cost when producing zero units? total cost: S 50 What is the marginal cost for the first unit? marginal cost: $ 64 What is the average total cost when producing three units? average total cost: $ 114 What is the average variable cost when producing four units? average variable cost: $ 16Question 19 10 pts lim \\3/6x3 +7w11 algebraically. Evaluate Write your work and conclusion neatly and legibly on a separate paper, then take a clear picture (or you can scan it, if you have a scanner) and upload the le. The points earned for this problem will be determined after I have reviewed your work. Upload Choose a File 1. (60 points) Suppose an industry with inverse market demand P = 300-20 is comprised of three firms which compete in quantities. Firm 1 is a Stackelberg leader and therefore acts first. Firms 2 and 3 observe Firm I's decision, then act simultaneously. Firms produce output with constant marginal cost c = 60. (a) (10) Write the profit functions for the three firms as a function of choice variables (quantities for each firm) only. (b) (15) For any value of q, find the best response functions for firms 2 and 3. (c) (10) Use your answers to part (b) to express ga and qa as functions of q only (i.e. not as functions of each other). (d) (10) Find the subgame perfect Nash equilibrium of this game (ie. the optimal choices which characterize what all firms are doing in equilibrium), equilibrium profits, and market clearing price. (e) (15) Suppose that firms 1 and 2 act simultaneously in the first period, then Firm 3 observes their choices before making its decision. Does social welfare increase of decrease relative to the previous model? (Hint: which is closer to how a perfectly competitive market would behave?) 2. (40 points) Consider a Hotelling model of the type discussed in class: there is a beach that is one mile long, with customers evenly distributed along the beach. Two dif- ferent ice cream shops are located at the endpoints of this beach (at points 0 and 1). Consumers dislike walking down the beach and pay transportation costs t = 2 per mile walked. All consumers have a value of V = 10 for an ice cream. Ice cream shops have constant marginal cost c = 2. (a) (5 points) Consider a consumer who is at the midpoint of the beach, r = . Write down their total cost (including transportation costs) of buying from each firm. assuming firm 1 (located at 0) sets price Pi and firm 2 (located at 1) sets price (b) (10 points) A consumer is indifferent between the two shops if the total cost they face at both shops is the same. Call this indifferent consumer's location I'm, Find p' for any pair of prices P and Pr. (c) (15 points) All customers to the right of a" buy from firm 2, and all customers to the left of ro buy from firm 1. Write down each firm's profits as a function of Pi and Pr. (d) (10 points) Find the Bertrand equilibrium prices of this market