Consider the economy of Zion. Assume that the economy is at its long-run equilibrium when there is a sudden tightening of monetary policy. Using IS-MP, AD-IA answer compare the following variables to their initial long-run equilibrium.

What happens to short-run real GDP?

What happens to short run real interest rates?

What happens to short run inflation?

What happens to long-run real interest rates?

What happens to long-run inflation?

1.B) Assume that the economy of Zion is at its short-run equilibrium when suddenly there is a increase in food prices.

-In the short-run what happens to the following variables?

Real interest rates

Real GDP

Inflation