A standard cycle is used which peaks at a growth rate of 1.05 and troughs at 0.95.

Case 2: The economy is making the transition from expansion into recession. The points picked are the growth rate = 1.01 for Y1 and = 0.99 for Y2.

a. What are stock prices (PS) doing?

b. What is the effect on stock prices from the changing market interest rates?

c. What are bond prices (PB) doing?

d. How is the Cd-curve shifting?

e. Given your equation for the money market, what are goods prices P doing?

f. Give a briefverbalexplanation of the general incentives facing the agents in the setting.

g. Provide atablesummarizing the full equilibrium changes in:

YCrBPPBPS