9. Consider a short-run closed economy IS-LM model where the aggregate demand equation is given by Y4 = 1000 + 4:%0 . Suppose that the aggregate supply equation is Y = + a(P EP) where = 1000, EP = 40 , and where & =1. In equilibrium, = Y%, Then the equilibrium price in this economy will be . (Hint: You should get a (simple) quadratic equation in P that you need to solve for P.) A)P*=40.0 B) P* =232 C)P*=354 D) P* = 48.3 10. Consider a Phillips curve of the form 7 = m_; 0.5(w u) + v where expected inflation is given by m_,. (Assume that v = 0.) Now, initially, # = 5 (percent), m_;=5 (percent), and u = 6 (percent). Suppose that the CB believes that inflation is too high and decides to use contractionary monetary policy so that inflation falls to 4 percent. That 1s m = 4. But expected inflation 1s still w_; = 5. (That 1s, people still expect 5% inflation for the future even though current inflation has fallen.) As a result of the CB's disinflationary policy, the following occurs: . (Hint: According to Okun's Law the following relation holds (approximately): 1 percent increase inu = 3 percent decrease inreal GDP) A) unemployment rises by 1%, output falls by 3% and the sacrifice ratio is 3. B) unemployment falls by 1%, output rises by 3% and the sacrifice ratio is -3 C) unemployment rises by 2%, output falls by 6% and the sacrifice ratio is 6 D) unemployment falls by 2%, output rises by 3% and the sacrifice ratio is 3. 11. Consider a Phillips curve of the form 7 = m_; f(u u) + v . In the case of demand-pull inflation, other things being equal: A) both the inflation rate and the unemployment rate rise at the same time. B) the unemployment rate rises, but the inflation rate falls. C) the inflation rate rises, but the unemployment rate falls. D) both the inflation rate and the unemployment rate fall. 12. In the Mundell-Fleming model, the domestic interest rate is determined by the: A) intersection of the LM and IS curves. B) domestic rate of inflation. C) world rate of inflation. D) world interest rate