Consider the following changes in the macroeconomy.

-For each of the changes, show how to think about them using the IS relationship, and explain how and why GDP is affected in the short run.

- Next, for each of the changes explain how and why you would change the interest rate in response to the following shocks with the goal to stabilize output.

-For each of the changes show the effects on the economy in the short run using the IS-MP diagram.

-Changes:

1.Consumers become pessimistic about the state of the economy and future productivity growth.

2.Improvements in information technology increase productivity and therefore increase the marginal product of capital.

3.A booming economy in Europe this year leads to an unexpected increase in the demand by European consumers for U.S. goods.

4.U.S. consumers develop an infatuation with all things made in New Zealand and sharply increase their imports from that country.

5.A housing bubble bursts so that housing prices fall by 20% and new home sales drop sharply.